International
LabourOrganization

More and Better Jobs throughSocially Responsible Labour
and Business Practices in theElectronics Sector of Viet Nam
Kenta Goto and Yukiko Arai

Multinational
Enterprises
and EnterpriseEngagement Unit
(MULTI)Enterprises
Department

More and Better Jobs throughSocially Responsible Labour andBusiness Practices in theElectronics Sector of Viet Nam
Kenta Goto and Yukiko Arai

Copyright © International Labour Organization 2017
First published 2017

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Goto, Kenta; Arai, Yukiko
More and Better Jobs through Socially Responsible Labour and Business Practices in the Electronics Sector of Viet Nam / Kenta Goto andYukiko Arai; International Labour Office - Geneva: ILO 2017
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V

Foreword
This report seeks to contribute to the question of how enterprises can generate more and better jobs throughsocially responsible labour and business practices in the Vietnamese electronics sector, taking into account theevolving transnational production system as Viet Nam is further integrated in the global economy. Electronics
has become the largest export-oriented industry in Viet Nam and is primarily led by major multinational
enterprises (MNEs) producing in Viet Nam.
While new job opportunities have emerged from Viet Nam’s successful integration into the global electronics
value chain, there are growing questions as to how this is playing out in terms of working conditions in the sector.
Working conditions are outcomes of the internal dimensions of business and labour practices which are closely
related to the employment and human resources strategies adopted; however, they are also affected by external
dimensions through multiple variables, including local labour market conditions, relevant institutional andregulatory frameworks, and above all, enterprises’ positions within the value chains and their relationships
with other enterprises. This is a particularly prominent feature of Viet Nam’s electronics industry, in which
MNEs play dominant roles in terms of employment and value chain coordination. From a local economic
development perspective, the operations of MNEs in the electronics industry has weak backward linkages with
Vietnamese domestic enterprises due to the underdevelopment of local supporting industries. This report presents
model cases of good practices on which key stakeholders in Viet Nam can build in order to formulate a concrete
future action plan. The report uses the provisions in the ILO Tripartite Declaration of Principles concerning
Multi­national Enterprises and Social Policy (ILO MNE Declaration) as the global framework reflecting thetripartite agreed consensus on how enterprises can best contribute to socio-economic development and decent
work.
Findings and recommendations of this study were presented during a tripartite-plus High Level Policy Dialogue
organized in September 2016 involving the Vietnamese government, social partners and multinational enterprises which concluded with the development of a Joint Action Plan, reflecting the joint commitment of theVietnamese Government and the employers and workers organizations in generating decent work in the sector.
The ILO will continue to provide technical assistance for its implementation, including through facilitation of
dialogues between the major players in Viet Nam as well as between Viet Nam and the major investor countries.

Chang-Hee Lee
Director
ILO Country Office for Viet Nam

Githa RoelansHead, Multinational Enterprises
and Enterprise Engagement UnitILO Geneva

VI

Acknowledgements
This study has been conducted by Kenta Goto of Kansai University (Japan) and Yukiko Arai of the ILO
Multinational Enterprises and Enterprise Engagement Unit (MULTI) in Geneva. Country-level interviews were undertaken during joint missions undertaken to Viet Nam in October 2015 and February
2016.
The authors above all wish to express their appreciation to all those who participated in the interviews
and focus group discussions, including the representatives of the Ministry of Labour, Invalids andSocial Affairs (MOLISA), Viet Nam Chamber of Commerce and Industry (VCCI), Viet Nam General
Confederation of Labour (VGCL), Viet Nam Electronics Industries Association (VEIA), Japan Business
Association of Viet Nam (JBAV), and the multinational and national enterprises operating in the Vietnamese electronics industry.
They also thankfully acknowledge the insights and collaboration received from a range of ILO colleagues.
Special thanks go to: René Robert (DWT Bangkok) for the technical advice and review; Ha Nguyen
Hoang, Le Thu Hang and Le Ngoc Anh (ILO Hanoi) for the country-level coordination; Emily Sims
(MULTI) for reviewing the draft report; and Githa Roelans (MULTI) and Chang-Hee Lee (ILO Hanoi)
for the overall guidance and support throughout.
This action-oriented MNE study in Viet Nam was funded by the Government of Japan, as part of the“More and Better Jobs through Socially Responsible Labour Practices in Asia” (MNED project) focusing on the Vietnamese electronics sector. It is one of the two studies undertaken under the MNEDElectronics project, and should be read in conjunction with the second report analysing the working
conditions in Viet Nam’s electronics industry (forthcoming).
The ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy(MNE Declaration) is used throughout the report as the guiding framework for “socially responsible
labour practices.”Table of Contents
Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

V

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

VI

List of tables and figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

VIII

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

1Introduction, context and focus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6

2

Overview of the Vietnamese electronics sector . . . . . . . . . . . . . . . . . . . . . .

9

2.1 The electronics sector in the national economy . . . . . . . . . . . . . . . . . . . . .

9

2.2 The export-oriented industry and its performance . . . . . . . . . . . . . . . . . . .

14

2.3 The importance of MNEs in the electronics sector of Viet Nam . . . . . . . . . .

193 Internal dimensions of labour and business practice: Working conditions,process characteristics, and worker attributes . . . . . . . . . . . . . . . . . . . . .

24

4External dimensions of business and labour practices: FDI policy, interfirm relationships, and institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30

5Aligning competitiveness and social responsibility in core business practices

33

6Model cases of MNE policies and practices in the Vietnamese electronics
sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

35

6.1 Building supplier capacity and achieving collective efficiency: The cases ofFuji Xerox, Apple and Foster Da Nang . . . . . . . . . . . . . . . . . . . . . . . . . .

35

6.2 Building trust and committing to dialogue outcomes: The case of Panasonic38

6.3 Successful inclusion of local enterprises in regional and global value chains:
The case of 4P Company Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

41

6.4 Supporting better institutions and policy frameworks through partnerships
and dialogue: The case of the JBAV . . . . . . . . . . . . . . . . . . . . . . . . . . .

42

VIII

7

Challenges, opportunities, and recommendations for future action . . . . . . .

45

7.1 Stakeholders, challenges, and opportunities . . . . . . . . . . . . . . . . . . . . . .

45

7.2 Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

47

7.2.1 Promote dialogue within and between enterprises, and in tripartite-plus
structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

47

7.2.2 Develop capacity of educational and training institutions . . . . . . .

48

7.2.3 Strengthen institutional capabilities and promote interministerial
policy coordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

49

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

50Annex 1. A note on methodological issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

52

LIST OF TABLES AND FIGURES
Table 1 Outline of the electronics sector of Viet Nam . . . . . . . . . . . . . . . . . .

10Table 2 Descriptive performance indicators . . . . . . . . . . . . . . . . . . . . . . . . . .

11

Table 3 Size distribution, by number of workers in 2012 . . . . . . . . . . . . . . .

13

Table 4 Changes in key export sectors (HS 2 digit level) . . . . . . . . . . . . . . .

15

Table 5 Key export goods in 2013 (HS 4 digit level) . . . . . . . . . . . . . . . . . . . .

18

Table 6 Largest 25 electronics enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21

Table 7 Global Competitiveness Index (7th pillar: Labor market efficiency) for25

Viet Nam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Figure 1 Foreign direct investment trends . . . . . . . . . . . . . . . . . . . . . . . . . . .

14

Figure 2 Export performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17Figure 3 Number of enterprises (total = 1088) . . . . . . . . . . . . . . . . . . . . . . . .

20

Figure 4 Number of workers (total = 325,583) . . . . . . . . . . . . . . . . . . . . . . .

20

Figure 5 Workers composition)

26..................................

1

Executive Summary
The electronics sector is one of the most globalized in terms of its organization; the production processes
and functions are highly fragmented and located across different countries, connecting enterprises atvarious stages in the value chain through complex ownership patterns and inter-firm relationships. Thisevolving economic organization is important as growth, employment creation, and working conditions
have become progressively embedded in it. This report specifically looks at the electronics sector of Viet
Nam within that context, and attempts to identify model cases where socially responsible labour andbusiness practices have at the same time enhanced enterprise competitiveness.
In global electronics value chains, lead coordinating firms, typically multinational enterprises (MNEs)
from developed countries, occupy dominant positions and exercise power over others in the network,
effectively organizing and structuring them. Through this process, they define key parameters suchas product quality, target markets, product configuration and other important strategic variables. For
developing countries such as Viet Nam, inclusion in these networks has become the most, if not theonly, viable option to secure their positions in this dynamic contemporary economic globalization. The
hope for governments lies in the possibility of “upgrading” their economic structure towards higher valueadded activities, thereby generating much-needed employment. For enterprises, it lies in the possibilityof acquiring and building upon the knowledge and technology transmitted through the networks tofurther advance their positions and shift into higher value-added business functions. Upgrading transformation of these types are, however, neither automatic nor promised.
Socially responsible labour practices can constitute good and sustainable core business strategies, and cangenerate more and better jobs. These types of practices affect enterprise performance through both internal and external dimensions, where the former is closely related to employment and human resources
strategies, while the latter includes broader corporate strategies on inter-firm relationships, and entails
different types of outsourcing and offshoring structures. The report attempts to highlight good labourand business practices in both dimensions, and to formulate policy recommendations.

The Vietnamese electronics sector
The electronics sector is currently the largest export industry of Viet Nam. One particular characteristicof this sector is the fact that its export-oriented value chain is governed by foreign-owned companies, inwhich local processes are confined to a very narrow functional scope, mainly in labour-intensive assembly
processes. This export-oriented industry is primarily coordinated by MNEs and generates the bulk of thesector’s employment. However, backward linkages with local enterprises remain very limited. There are a
few interesting facts regarding the electronics sector of Viet Nam worth mentioning:

2

 Out of the largest 100 enterprises, 99 are subsidiaries of MNEs, and the remaining one was a Stateowned enterprise (SOE), which ranked 100th.
 The largest 20 enterprises employ 49.4 % of all workers; the largest 50 employ 69 %, and the largest
100 employ 82 %.
 Out of the largest 20 enterprises, 11 were Japanese, four were Korean, three were originating from
Taiwan, China, and one was American. The country of origin of the remaining enterprise could not
be identified.
 More than half of the enterprises and the workers of the electronics sector in Viet Nam operate in the
Red River Delta (RRD)” region (which includes Hanoi), suggesting a significant degree of geographical concentration. This is followed by the Southeast (SE) region (which includes Ho Chi Minh City).
 Regarding electronics MNEs, Japanese enterprises dominate in both the RRD and SE regions.

Internal dimensions of labour and business practice:
working conditions, process characteristics, and worker attributes
Jobs at electronics enterprises typically comprise the following four categories: (1) management; (2) engineersand professional office staff; (3) technical workers and office staff, and (4) line operators. The first three are
regarded as “skilled” positions, while the fourth is considered primarily “non-skilled” work in which
workers undertake simple and repetitive tasks. The majority of the workforce were line operators, whowere predominately female.
Viet Nam is a relatively labour-abundant country; however, its rapid economic growth has generated
new employment opportunities in non-manufacturing sectors, which have made recruiting and retaining workers increasingly difficult for electronics enterprises, including MNEs. While this is becoming
increasingly apparent for non-skilled line operators, the supply of workers with technical and managerial
skills is extremely small, which is one of the main bottlenecks for further development of the electronics
sector.
Stable employment relationships are often key to the accumulation of skills at the enterprise level. In
this context, the capability of enterprises to hire and retain workers becomes important, and that isdependent on local labour market conditions. Enterprises are, however, also affected by the institutional
environment regulating local labour markets. In this sense, the Vietnamese Labour Code of 2013 hasbeen affecting the employment strategies of enterprises, as well as the resulting working conditions ofworkers to a significant extent. More specifically, provisions related to employment contracts and overtime regulation have been among the most debated issues in relation to the 2013 Labour Code. One
critical issue, besides the content-related controversies, seemingly pertains to the lack of involvement of
key stakeholders – in particular MNEs – in the elaboration of those provisions. There is a strong need fora new “extended” platform for social dialogue that goes beyond the traditional State-defined tripartite
structure. New key stakeholders, such as MNEs, including their headquarters in their home countries,
should be included.

3

FDI policy, interfirm relationships, and institutions
The electronics sector has been one of the key priority sectors for the Vietnamese government, and it
has successfully encouraged FDI since the 1990s through various policy measures. These have led to thesignificant agglomeration of electronics MNEs in the country. There are, however, arguments that thesepolicy measures may have put local electronics enterprises at a relative disadvantage as there was no policy
support that specifically targeted and supported them.
As backward linkages with local enterprises remain very weak, technological transfers from MNEs also
remain limited. MNEs attribute this to the lack of capacity in local supporting industries. This has beenrecognized as a challenge by most local enterprises; however, it is also perceived as a major bottleneck for
MNEs as it limits their supply source, requires longer lead times (especially when inputs are imported),
and keeps input costs relatively high. There are, however, successful cases in which local enterprises wereable to penetrate into MNE-led global electronics value chains.

Aligning competitiveness and social responsibility in core business practices
How can win-win outcomes for workers and employers be created through the alignment of competitiveness and socially responsible labour and business practices? One of the most archetypal strategies isthrough rule-based initiatives, such as establishing and implementing codes of conducts, which explicitly
stipulate conditions related to corporate social responsibility (CSR). While such “de jure” mechanisms
may be effective to ensure socially responsible practices, such behaviour can also exist without rule-based
enforcement. Socially responsible corporate practices can, and often do, evolve out of pure businessstrategies. These types of corporate behaviour are outcomes of pure profit maximization strategies, andare also self-enforcing (“de facto” mechanisms).
Unlike de jure CSR activities, which depend more on check lists with a strong focus on the documentation of rules and regulations, this report considers de facto mechanisms as equally important. Suchde facto mechanisms typically constitute key pillars of enterprises’ core business practices, which are also
effective in ensuring responsible social outcomes in terms of working conditions. We explicitly recognize that such practices may not necessarily be designed as CSR practices and implemented throughspecifically designed codes of conduct. Rather, they may be operationalized as core business strategies
that have a direct bearing on competitiveness, while still being de facto socially responsible. De jure- andde facto practices are not opposing concepts or complete substitutes; rather, in many cases they are mutually reinforcing and exhibit strong complementarity.

Model cases of socially responsible labour and business practices
The question of how enterprise performance and socially responsible behaviour interact and play out has
always attracted significant attention. Socially responsible practices are often seen as costly and harmful to competitiveness. However ample anecdotal evidence suggest that this is not always the case. In
connection to this, we were able to identify several successful cases in which some MNEs have aligned
their core business strategies around practices that have become de facto socially responsible. Below are
the cases that are highlighted in the report.

4 Building supplier capacity and achieving collective efficiency: the cases of Fuji Xerox, Apple andFoster Da Nang.
Technological transfers from MNEs to local suppliers may be perceived as costly. However, when the
production system is so fragmented, “collective efficiency” and, consequently, the upgrading of suppliers’ capacities become crucial. In such a context, it becomes perfectly rational for MNEs to support thecapacity building of their local suppliers, the benefits of which will easily outweigh the costs incurredin the process.
 Building trust between management and workers, and committing to dialogue outcomes:
The case of Panasonic.
The ability of an enterprise to recruit and retain workers becomes important because this determines
the latter’s prospects for internal skill accumulation. The key to success in this is to implement businessand employment practices that build trust between workers and managers.
 Successful inclusion of local enterprises into regional and global value chains: The case of 4P
Company Ltd.
The weak backward linkages between MNEs and the local industry is a major bottleneck for theelectronics industry of Viet Nam. This case highlights an example in which long-term cooperative
relationships between a local company and several MNEs facilitated the entry of this local enterprise
into a globalized electronics value chain, allowing it to position itself as a key component supplier.
 Supporting better institutions and policy frameworks through partnerships and dialogue:
The case of the Japan Business Association in Viet Nam (JBAV).
MNEs have a significant impact on the determination of labour market and working condition
outcomes in the electronics industry of the country. Therefore, establishing close relationships withsuch associations as the JBAV can provide a highly effective channel through which to jointly design
institutions and policies that promote competitiveness and decent work.

Challenges, opportunities, and recommendations for future action
There are still bottlenecks in realizing win-win outcomes through competitiveness-enhancing socially
responsible labour and business practices. Those bottlenecks are related to the lack of institutional andpolicy capacity. First, there is a serious shortage of skilled workers, primarily attributed to the under­
development of educational and training institutions. Second, the regulatory environment in Viet Nam
is often inconsistent, with frequent and arbitrary changes. Third, the local supporting industry in Viet
Nam is highly underdeveloped, with significant capacity gaps between what is required by MNEs andwhat local enterprises can supply. This is the main bottleneck holding local enterprises back from integration into global supply chains.
The biggest challenges faced by workers are chiefly related to the fact that they are restricted in terms ofopportunities to maximize their potential in higher value-added jobs. The capacity of local Vietnameseelectronics enterprises needs to be upgraded to benefit fully from the expanding global electronics value
chains. Local educational and training institutions in Viet Nam are underdeveloped and still ineffective
in building the necessary skills required. In light of this, the following recommendations are key.

5

 Promote dialogue within and between enterprises, and in tripartite-plus structures
Dialogue is key to promoting socially responsible business and labour practices, in particular in thefollowing three ways:(1) Dialogue between workers and employers (intra-firm dialogue). Intra-firm dialogue is crucial torealizing consent-based employment and business practices in which decent working conditions
and competitiveness enhancing practices coexist.
(2) Dialogue between enterprises through interfirm relationships (inter-firm dialogue). Dialogue atthis level is necessary to promote the transfer of technology from MNEs to local enterprises, which
will in turn provide the basis for dynamic collective efficiency gains.
(3) Dialogue within an extended “tripartite-plus” structure, in which MNEs (both local branches andhome country headquarters) are included in the traditional tripartite structure. The involvementof MNE headquarters will become important as most of the fundamental strategic decisions are
made there. A practical mechanism to involve MNE headquarters needs to be discussed and operationalized.
 Develop capacity of educational and training institutions
There is a serious shortage of skills in the sector, for which the lack of quality and relevant vocational
and training institutions is widely held responsible. The ability of workers to think logically is something that is perceived, at least by most MNEs, to be weak in Viet Nam, and education and training
institutions can help build such capabilities, provided that the appropriate curricula and able instructors are in place.
 Promote interministerial policy coordination
Inconsistencies between key policies pertinent to areas related to MNEs, local Vietnamese enterprises,
and the workers must be addressed. Better interministerial policy coordination between relevant
ministries, including the Ministry of Planning and Investment (MPI), Ministry of Industry and Trade(MOIT), and the Ministry of Labor, War Invalids and Social Affairs (MOLISA) may be needed. In
this process, MNEs and foreign business associations can play major roles.

1
Introduction, context and focus
The electronics sector is one of the most globalized in terms of its organization; the production processes
and functions that were once completed in one country are now fragmented and located across different countries and regions, connecting enterprises at various stages in the value chain through complex
ownership patterns and inter-firm relationships. The primary motivations propelling the developmentof these networks tend to be efficiency seeking rather than market seeking, and are typically verticallystructured and intra-industry based.
Government-led multilateral and bilateral trade liberalization arrangements have played key roles in the
proliferation of these types of production structures (de jure integration). However, strategic businessdecisions of MNEs, in their attempts to dynamically optimize sourcing decisions through the offshoringand outsourcing of non-core processes and functions, have been the key drivers of the expansion andthe intensification of these transnational networks. This private-sector-led economic integration (de facto
integration) through the formation of such networks is, above all, a prominent feature of Asian economic
integration (Armstrong, 2012; Hiratsuka, 2006). The growth and expansion of these networks, bothin terms of sectoral and regional coverage, are the cumulative results of reduced trade barriers, lower
transportation costs, and the diffusion of Internet-based information and communication technology(ICT), which have collectively unfolded rapidly at a global scale since the 1990s. The electronics sector isparticularly prone to fragmentation dynamics, connecting local economies globally and culminating incomplex forms of transnational network structures.
This evolving economic organization is important for both developed and developing countries, as
growth and job creation potentials have become progressively embedded in this context. In these
networks, enterprises from developed countries must continuously redefine their core competences ascomparative advantages are always shaped and reshaped in the evolving transnational structures, underpinned by changes in technology, resource endowments, and market conditions in the global economy.
These networks are made up from different types of enterprises in asymmetric power relationships, wherelead coordinating firms (typically from developed countries) occupy dominant positions and exercise
power over others in the network, effectively organizing and structuring them. Through this process,they define key parameters such as product quality, target markets, product configuration and otherimportant strategic variables, which further determines network participation and the allocation of thefragmented processes/functions and the associated economic rents (value added) along the value chain(Goto et al., 2011; Goto and Endo, 2014; Kawakami, 2011).
For developing countries, inclusion in these networks has become the most, if not the only, viable option
to secure their positions in this dynamic contemporary economic globalization. The hope for governments lies in the possibility of upgrading their economic structure towards higher value-added activities,
thereby generating the much-needed employment and income. For enterprises it lies in the possibility ofacquiring and building upon the knowledge and technology transmitted through the networks to further
advance their positions and shift into higher value-added business functions. Upgrading transformationof these types are, however, neither automatic nor promised (Goto, 2014; Kawakami, 2011).

7

While the expansion of such transnational production networks and their potentially positive impacts
on local economies in developing countries have attracted significant attention, concerns on how thesewill actually play out in terms of working conditions have also increased (Goto, 2011). Ample anecdotal
evidence suggests that the concentration of economic functions and processes in particular localities
through vertical specialization have led to significant increases in competition. Some local enterprises
have responded with cost-cutting measures at the expense of working conditions. Such “race to thebottom” survival strategies are, in the long run, detrimental to workers’ livelihoods, enterprise performance, and national development goals. In addition, they will have serious negative publicity effects,
which could ultimately cause backlash for the reputation of the enterprise and lead coordinators of the
production networks, critically undermining overall business performance.
This report, however, goes one step further and argues that socially responsible labour practices are notjust effective in terms of mitigating reputation risks, but can actually constitute good and sustainable
core business practices. The focus of this report is therefore on how genuine competitiveness-enhancing
business strategies can at the same time be socially responsible and generate more and better jobs in the
sector. The report also attempts to gather model cases implemented by MNEs in Viet Nam. The report
defines the term “socially responsible” as business (including labour) practices that are compatible with
the ILO’s MNE Declaration (ILO, 2006b).
The report will explicitly acknowledge the interconnectedness of enterprises in the value chain, andwill address issues that extend well beyond “internal” labour-related business practices. The production processes of this sector are now internationally and vertically fragmented as described earlier, andeach enterprise is connected to this value chain through complex inter-firm relationships. The particular
positions of enterprises in this structure have important implications on their dynamic upgrading
trajectories, determined by their relative competitive positions in vertical (vis-à-vis suppliers andbuyers) and horizontal (vis-à-vis other competitors in the same functional area) inter-firm relationships,
which ultimately shape their possibilities for achieving sustainable growth. These all affect the leverageof enterprises in terms of the working conditions they can offer to current and potential workers. The
focus is therefore on both internal and external dimensions, where the former is closely related to employment and human resources strategies, while the latter includes broader corporate strategies on inter-firm
relationships and entails different types of outsourcing and offshoring structures and sourcing strategies.
Explicit recognition of these different dimensions is crucial, considering the fact that the relationshipand involvement of MNEs with the local industry and its labour market can be significantly different
depending on how MNEs are involved in the production and distribution networks, and how these areorganized. The classical form is characterized by the establishment of a subsidiary enterprise by an MNE
in Viet Nam through FDI. Canon, Samsung, Panasonic, LG, and Fuji Xerox, for example, have all built
large production plants and employ thousands of workers. Working conditions at their own factories arethus more or less determined through internal dimensions of labour and business practices.1 Enterprises
such as Apple, on the other hand, do not own their own production facilities in Viet Nam (or elsewhere),and rely exclusively on outsourcing to those that operate in Viet Nam. These types of production organi­zation influence workers as well, but not through the same internal path as FDI-based enterprises. As
we will discuss in later chapters of this report, this does not suggest that the provision of decent working
conditions through good business and labour practices is less important for these production networks.
To the contrary, it remains just as crucial as in traditional FDI-based production modalities.

1 External dimensions can have significant effects as well, particularly when enterprises produce under subcontracting arrangements (original
equipment manufacturing, OEM) for other MNEs, and when they are required to implement these buyers’ codes of conduct.

8This report is therefore concerned with analysing MNE practices from these perspectives, and documen­ting model cases of socially responsible labour and business practices within such a context. Further
actions for key electronics sector stakeholders in Viet Nam will also be suggested with a view to supporting the country’s ongoing efforts to promote decent work in this sector.
The report is based on available secondary data and relevant literature, as well as on primary data andinformation obtained through intensive individual and group interviews with electronics companies andrelevant organizations. The primary information was collected during two missions to conduct field workin locations including Hanoi, Hai Duong province, Hai Phong province, Bac Ninh province, Bac Giang
province, Hung Yen province, Da Nang, Ho Chi Minh City and Dong Nai province.2
Secondary data was used mainly to highlight the sectoral context, which is characterized by enterprise heterogeneity and complex/asymmetric inter-firm relationships in production and distribution
networks. As each of the enterprises are embedded in this context at different levels and through different
relationships, they face significantly different options in labour- and business-related strategies. Theiractual practices are thus strongly associated with their respective positions in the value chain, which
determine those differences. In that regard, while the primary information collected through intensive
enterprise interviews was very helpful and was used in order to identify common sectoral challenges,
emphasis was placed on how each of those enterprises responded to those challenges in labour andbusiness practices, and how that has played out in terms of working conditions. In other words, the key
motivation of the enterprise interviews was not to identify practices that were (statistically) representativeof the electronics sector of Viet Nam, but to identify examples of MNEs engaging in labour and businesspractices that were compatible with the enhancement of competitiveness and the promotion of decent
work. Such practices tended to be unique and difficult to find. While the electronics firms interviewed
include MNEs from different countries, it should be noted that the majority of those were Japanese
MNEs. This is primarily because of the disproportionately large presence of Japanese MNEs in the
Vietnamese electronics sector, as we will outline in the following section.
Accordingly, representatives of 17 electronics MNEs were interviewed, including 12 Japanese, two Korean,
two American and one originating from Taiwan, China. Interviews were also conducted with eight local
Vietnamese electronics enterprises, out of which four were operating in Hanoi and four in Ho Chi Minh
City. Additional interviews were conducted with relevant organizations and stakeholders as well, including the MOLISA and Labour Inspectorates in Hanoi, Da Nang and Ho Chi Minh City, the Viet Nam
Chamber of Commerce and Industry (VCCI), Viet Nam General Confederation of Labour (VGCL),
Viet Nam Electronics Industries Association (VEIA), JBAV, Japan Business Association in Ho Chi Minh
City (JBAH), Japan Business Association in Da Nang (JBAD), Korean Chamber of Commerce in Viet
Nam (KOCHAM), Japan External Trade Organization (JETRO), and the Japan International Cooperation Agency (JICA).
The report is structured as follows. It will first provide an overview of the Vietnamese electronics sector,
and then look into ongoing labour practices at the enterprise level. Available secondary data and related
research, as well as primary data and information obtained through intensive interview-based field work
were used. This will be followed by the description and analysis of some concrete examples of the MNE
representatives interviewed. Finally, based on the findings, recommendations on future actions to further
promote the generation of more and better jobs through socially responsible labour and business practices in the electronics sector of Viet Nam will be proposed.

2 The field work was conducted during the periods 4-9 October 2015 and 24 February – 4 March 2016.

2
Overview of the Vietnameseelectronics sector ³
The electronics industry is now one of the largest employers and foreign currency earners of Viet Nam. The
industry is, however, highly heterogeneous with wide variation in product categories, process technology,
and above all, enterprise characteristics. The Vietnamese industry is also characterized as dual-structured,with a domestic-market-oriented industry on the one hand and an export-oriented one on the other.
While locally-owned, domestic enterprises play key roles in the domestic market. The export-oriented
sector is almost entirely dominated by foreign-owned enterprises, or MNEs (Vind, 2008).

2.1 The electronics sector in the national economy
This section will provide an overview of the electronics industry in relation to the rest of the economy
to highlight some of its characteristics. Table 1 outlines the key features of the electronics sector of Viet
Nam. The data comes from the Viet Nam Industrial Standard Classification (VISC) system, and theelectronics industry is represented by two sectoral categories in this report as defined by VISC 2007:“Manufacture of computer, electronic and optical products (C26)” and “Manufacture of electrical equipment (C27).” The former includes products such as computers and telephone sets, and the latter includes
products such as electric motors, wiring devices, and domestic appliances.

3 Export data for the electronics sector in this report are represented by the HS84 and HS85 product categories. Typical products that are relevant for Viet Nam in these classifications include personal computers and printers for HS84 and mobile phones for HS85. The official code
description for HS84 (2012 classification) is “nuclear reactors, boilers, machinery and mechanical appliances; parts thereof.” The official code
description for HS85 is “electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and soundrecorders and reproducers, and parts and accessories of such articles.”
4 The VISC system is based on the International Standard Industrial Classification of All Economic Activities (ISIC), and the VISC 2007 is
specifically based on ISIC Rev.4 classification.

10

TABLE 1 – Outline of the electronics sector of Viet Nam
2005

Number of acting enterprises

2005% share(out of total)% share(out of total)

Total

106,616

346,777

Manufacturing

20,84319.5 %

56,30516.2 %

Manufacture of computer, electronic
and optical products

256

0.2 %

713

0.2 %

Manufacture of electrical equipment

485

0.5 %

1,128

0.3 %

Number of employees
Total

6,077,202

11,084,899

Manufacturing

2,982,926

49.1 %

4,990,85845.0 %

Manufacture of computer, electronic andoptical products (C26)

45,685

0.8 %289,757

2.6 %Manufacture of electrical equipment(C27)

85,782

1.4 %

145,573

1.3 %Female employees, % share
Total

43.3 %

43.5 %

Manufacturing

58.6 %

58.8 %

Manufacture of computer, electronic andoptical products (C26)58.0 %

77.1 %

Manufacture of electrical equipment(C27)

63.9 %

61.6 %

Total

1,657

5,322

Manufacturing

1,404

4,678

Manufacture of computer, electronic andoptical products (C26)

1,989

5,303

Manufacture of electrical equipment
(C27)

1,840

5,543

Average compensation per month(thousand VND)

Source: General Statistical Office, tabulated by author.

11

According to this table, the share in terms of the number of acting enterprises of both sectors (C26and C27) seems quite small in both reference years, with percentage shares between the range of 0.2 %and 0.5 %. However, it is interesting to note the relatively larger shares for both sectors in terms of thenumbers of employees. In 2012 it was 2.6 % for C26 and 1.3 % for C27. This implies that on average,
the electronics sector tends to be larger in the number of workers per enterprise than the cross-industry
average. What is noticeable, however, is the rapid increase of the share of the number of employees inC26, which jumped from a mere 0.8 % to 2.6 % during the seven-year interval, suggesting that the average firm size in this sector grew extremely rapidly in comparison to others.
Another interesting point is the higher than average share of female workers in both sectors, especially thehigh share recorded for sector C26 in 2012, which suggests that more than three-fourths of its workforce
was female. This is in stark contrast with the national average of 43.5 %, and even with the manufacturing average of 58.8 %. Average compensation per month for both sectors seems, however, very close to
the national average.

TABLE 2 – Descriptive performance indicators
per enterprise(billion VND)

(billion VND)

2005

2012

Total

946,857

Manufacturing

per worker(million VND)

2006

2012

2005

2012

6,097,088

8.9

17.6

155.8

550.0

295,907

1,354,015

14.2

24.0

99.2

271.3

Manufacture of computer,electronic and opticalproducts

9,135

87,799

35.7

123.1

200.0

303.0

Manufacture of electricalequipment (C27)

10,14536,742

20.9

32.6

118.3

252.4

2,140,558

11,167,844

20.1

32.2

352.2

1,007.5

Manufacturing708,1103,752,317

34.0

66.6

237.4

751.8

Manufacture of computer,electronic and opticalproducts

35,675475,606

139.4

667.0

780.9

1,641.4

Manufacture of electricalequipment (C27)

31,634

147,734

65.2

131.0

368.8

1,014.8

Value of fixed assets andlong-term investment

Net turnover
Total

12

TABLE 2 – Descriptive performance indicators
per enterprise(billion VND)

(billion VND)

2005

2012

Total

98,424

Manufacturing

per worker(million VND)

2006

2012

2005

2012

358,825

0.9

1.0

16.2

32.4

22,908

117,797

1.1

2.1

7.7

23.6

Manufacture of computer,electronic and optical products

1,286

23,610

5.0

33.1

28.1

81.5

Manufacture of electricalequipment (C27)

1,193

3,324

2.5

2.9

13.9

22.8

Total

5.25

3.13

Manufacturing

3.19

3.09

Manufacture of computer,electronic and optical products

3.57

4.91

Manufacture of electricalequipment (C27)

3.7

2.22

Profit before taxes

Profit rates

Source: General Statistical Office, tabulated by author.

Table 2 provides additional descriptive indicators on this sector. While most of the indicators for sector
C27 seem to be around the national and/or industry average, those for C26 stand out in many dimensions. First, the values of fixed assets and long-term investments per enterprise are very high for 2012
compared to both manufacturing sector and national averages, while those figures per worker tend toconverge towards the manufacturing average. This might reflect the possibility that the average firm sizein sector C26 is expanding more rapidly than others.
What deserves special attention is the C26 difference in net turnover, profit before taxes, and profit rates.
As highlighted in grey, the values for all of the variables are very high relative to both manufacturing andnational averages, with the only exception being 2005 profit rates. Average enterprise performance ofsector C26 in terms of net turnover and profits in 2012 seems exceptional.

13

TABLE 3 – Size distribution, by number of workers in 2012

Total
Total

less than 5

346,777% shareManufacturing

56,305% share739

Manufacture of computer,electronic and optical products% shareManufacture of electricalequipment (C27)

1,128% share200-299

5-9

10-49

127,010

96,08894,64821,07136.63 %

27.71 %

27.29 %

6.08 %

12,10812,926

19,5747,366

21.50 %

22.96 %

34.76 %

13.08 %

145

116

199

121

19.62 %

15.70 %

26.93 %

16.37 %

193

231

392

183

17.11 %

20.48 %

37.75 %

16.22 %

300-499

50-199500-999

1000-4999

5000-

Total

2,847

2,241

1,615

1,132

125

% share0.82 %

0.65 %

0.47 %

0.33 %

0.04 %

Manufacturing

1,357

1,181

948

766

79

% share2.41 %

2.10 %

1.68 %

1.36 %

0.14 %

26

39

35

49

9

3.52 %

5.28 %

4.74 %

6.63 %

1.22 %

46

36

21

21

5

4.08 %

3.19 %

1.86 %

1.86 %

0.44 %

Manufacture of computer,electronic and optical products% shareManufacture of electricalequipment (C27)% shareSource: General Statistical Office, tabulated by author.

It should be noted, however, that heterogeneity is typical in any industry, and therefore these average
figures may not correctly reflect the sectoral performance as a whole. The difference is particularly significant between foreign and domestic enterprises, as this report makes clear in the following sections. Table
3 summarizes the size distribution by number of workers for the national manufacturing total andindividual sectors. Again, what stands out is the relative concentration of large enterprises in sector C26,
where mega enterprises employing more than 5000 workers occupy 1.22 % of all enterprises. The factthat this sector’s firm-size distribution is skewed towards larger enterprises becomes more obvious whencompared with the share of enterprises with more than 500 workers. While this share for “total” and“manufacturing” are just 0.83 % and 3.18 % respectively, that for sector C26 is 12.58 %. Nevertheless,this also indicates that the majority of enterprises in this sector are still small/micro in size, where enterprises with less than 50 workers occupy about two-thirds of all enterprises.
The next section more specifically focuses on the export-oriented electronics sector of Viet Nam, which
has today become its largest foreign currency earner.

14

2.2 The export-oriented industry and its performance
East Asia is the world’s largest producer of electronic products catering to the global market, wheredevelopment was triggered by the enterprise-level offshoring and outsourcing activities of major
American, European, and East Asian (especially Japanese) electronics companies (Ernst, 2004; Lowe andKenney, 1999). While these have been made possible under different multilateral trade liberalization
frameworks, advancements in production technology with the rapid diffusion of Internet-based ICT
and related application services were the main drivers of these fragmentation dynamics, having impacted
directly the evolution of a progressively modularized production system (Sturgeon, 2002). In the case of
personal computers production, for example, production processes were in the past vertically integrated.
Manufacturing technology and the configuration of parts and components were essentially contained
in-house. However, this changed when key components were converted into generic and codified
modules, allowing major electronics companies to standardize the production processes, and outsource/
offshore such generic processes and functions to cost-saving locations, primarily in the newly industrializing Asia (Gangnes and Van Assche, 2010; Palpacuer and Parisotto, 2003). From the viewpoint ofdeveloping countries, standardized and codified modules opened up completely new opportunities toparticipate in this vertically structured division of labour. Viet Nam is exactly one such country.
Viet Nam’s integration into the global economy effectively kicked off when the Doi Moi (renovation)
policy was adopted in 1986. Linkages beyond the Council for Mutual Economic Assistance (CMEA)
block were rapidly established, accompanying a significant increase in inward FDI in the late 1980s (seeFigure 1). The Government in general encouraged FDI through policy leverage, including reductions invarious taxes and the provision of preferential land rents, and an inward investment boom occurred in
the early 1990s – mostly from more developed countries, particularly Japan and other Asian neighbours.

FIGURE 1 – Foreign direct investment trends

10000

Million US$

8000

6000

4000

2000

19

19

19

19

20

20

20

20

80

85

90

95

00

05

10

13

Year
Source: World Development Indicators, the World Bank.

15

This accompanied changes in its domestic economic structure. Viet Nam had traditionally been a major
exporter of primary products such as crude oil and agricultural/food products. However the garment
sector quickly rose as one of the largest non-resource based manufacturing export sector in the early
1990s. Table 4 outlines the key export sectors in 2003, 2008 and 2013. In 2003, the largest export sector
was mineral fuel and oil (HS27). With about one-fifth of all exports, it has traditionally been the largest
foreign currency earner for Viet Nam. This is followed by footwear (HS64), seafood (HS3) and apparelproducts (HS62 and HS61). Note that the HS codes for apparel products are divided according to
the materials used (while the two-digit-level code for footwear is not). Therefore in reality, apparel was
the second largest export sector with a share of almost 17 % of total exports in the same year. In 2008,“electrical and electronic equipment” (HS85) appears in the top-10 list, and is ranked as the sixth largest
export sector which, when combined with the “machinery” sector (HS84), occupies more than 10 %of total export share. In 2013, the total share of the two sectors approached almost one-third of totalexports (30.7 %), with “electrical and electronic equipment” (HS85) becoming the largest export sector,
surpassing crude oil exports by a very large margin. The export performance of the electronics sector has
been phenomenal in Viet Nam, as is shown in Figure 2.

TABLE 4 – Changes in key export sectors (HS 2 digit level)

Unit: Million US$

2003
Rank

HS

Sector

1

27

Mineral fuels, oil

4,151

20.6 %

2

64

Footwear

2,299

11.4 %

3

3

Seafood

2,075

10.3 %

4

62

Apparel (woven)

2,022

10.0 %

5

61

Apparel (knitted)

1,364

6.8 %

6

85

Electrical, electronic equipment

942

4.7 %

7

10

Cereals

723

3.6 %

8

9

Coffee

677

3.4 %

9

94

Furniture

656

3.3 %

10

84

Machinery

623

3.1 %

3,084

15.3 %

Others

Value

Share

20,149

16

TABLE 4 – Changes in key export sectors (HS 2 digit level)

Unit: Million US$

2008
Rank

HS

Sector

Value

Share

1

27

Mineral fuels, oil

12,64520.2 %

2

64

Footwear

4,872

7.8 %

3

62

Apparel (woven)

4,605

7.3 %

4

61

Apparel (knitted)

3,894

6.2 %

5

3

Seafood

3,889

6.2 %

6

85

Electrical, electronic equipment

3,667

5.9 %

7

10

Cereals

2,905

4.6 %

8

94

Furniture

2,741

4.4 %

9

84

Machinery

2,664

4.3 %

10

9

Coffee

2,604

4.2 %

Others11,45518.3 %

62,685
2013
Rank

HS

Sector1

85

Electrical, electronic equipment

32,28324.5 %

2

27

Mineral fuels, oil

9,685

7.3 %

3

62

Apparel (woven)

8,829

6.7 %

4

64

Footwear

8,722

6.6 %

5

84

Machinery

8,240

6.2 %

6

61

Apparel (knitted)

7,917

6.0 %

7

3

Seafood

5,062

3.8 %

8

94

Furniture

4,242

3.2 %

9

9

Coffee

3,770

2.9 %

10

40

Rubber

3,271

2.5 %

Others28,09921.3 %

Value

Share

132,033
Source: UN Comtrade database, author’s tabulation.

17

FIGURE 2 – Export performance
140,000

40%

105,000

30%

70,00020%

35,00010%Million
US$

13
20

12
20

11
20

Total exports(Million US$, left axis)

10
20

09
20

08
20

07
20

06
20

05
20

04
20

03
20

02
20

01
20

00
20

Electronics Exports(Million US$, left axis)

Export share(%, right axis)

Note: “Electronics export“ is represented by the total export values of HS84 and HS85.
Source: UN Comtrade.

As the two-digit HS code, particularly that for electronics, includes a wide variety of products withsignificantly different technological and process attributes, a closer look at a more disaggregated levelis necessary to correctly understand the characteristics of the current Vietnamese electronics industry.
Table 5 shows the key export items according to the four-digit HS codes for 2013.

18

TABLE 5 – Key export goods in 2013 (HS 4 digit level)

Unit: Million US$

Rank

HS

Description

Value

Share

1

8517

Telephone sets, including telephones for cellular
networks or for other wireless networks; other apparatus for the transmission or reception of voice,images or other data, including apparatus for communication in a wired or wireless network.

21,85316.6 %

2

2709

Petroleum oils and oils obtained from bituminous
minerals, crude.

7,375

5.6 %

3

6403

Footwear with outer soles of rubber, plastics, leather
or composition leather and uppers of leather.

3,639

2.8 %

4

8471

Automatic data processing machines and units
thereof; magnetic or optical readers, machines fortranscribing data onto data media in coded form
and machines for processing such data, not elsewhere specified or included.

3,413

2.6 %

5

9403

Other furniture and parts thereof.

2,962

2.2 %

6

1006

Rice.

2,926

2.2 %

7

6404

Footwear with outer soles of rubber, plastics, leather
or composition leather and uppers of textile materials.

2,865

2.2 %

8

901

Coffee, whether or not roasted or decaffeinated;coffee husks and skins; coffee substitutes containing coffee in any proportion.

2,551

1.9 %

9

8443

Printing machinery used for printing by means ofplates, cylinders and other printing components ofheading 84.42; other printers, copying machines
and facsimile machines, whether or not combined;
parts and accessories thereof.

2,519

1.9 %

10

8544

Electrical machinery and equipment and parts
thereof (Insulated (including enamelled or anodised)
wire, cable (including co-axial cable) and other insulated electric conductors.

2,516

1.9 %

Others

79,41360.1 %

Total

132,033

Source: UN Comtrade database, author’s tabulation.

According to this table, the largest export product group from Viet Nam is “telephone sets and related
apparatus (HS8517)” with a share of 16.6 % of total exports, which seems extraordinary by any standard.
This is followed by crude oil and footwear. However, computer-related products (HS8471) appear again
in the fourth rank. This is followed by furniture, rice, footwear and coffee, and then electronic products
appear again, occupying the ninth (HS8443 Printers and related products) and tenth (HS8544 electronic equipment and parts) positions.

19

2.3 The importance of MNEs in the electronics sector of Viet Nam
One of the key characteristics of the Vietnamese electronics industry is that its role is still limited in theexport-oriented sector in two dimensions: functional scope and local enterprise engagement. This statement
may seem rather paradoxical given its prominent position as the country’s leading export sector.
The first dimension is related to the fact that the processes undertaken in the Vietnamese electronics
sector are still confined to a very narrow functional scope, mainly in labour intensive assembly of components and final products. As production fragmentation (and therefore vertical specialization) has become
extremely fine-tuned, the Vietnamese industry occupies only a marginal position in the global electronics value chain (Vind, 2008). While the electronics assembly process is still highly capital intensive, thefactor of production to which Viet Nam is capable of contributing is still primarily unskilled labour(production equipment and machinery). Other higher value-added services are almost entirely imported.
As such, in functional terms, the Vietnamese electronics sector caters to the same functions as in thegarment sector, which also includes labour-intensive assembly processes that are typically low value-added.
The second dimension is related to the fact that the functions described above are almost entirely
undertaken by MNEs, and local Vietnamese enterprises play negligible roles in this. This applies to the
supporting industry and sub-contracting arrangements as well – the involvement of Vietnamese enterprises in backward linkages with these MNEs are likewise extremely limited. Electronics MNEs in
Viet Nam typically source non-essential inputs such as carton boxes and packing materials from local
Vietnamese enterprises. The major obstacle to the integration of Vietnamese enterprises in this network
in areas closer to the core of production is the lack of technical capability. Most of the local (Vietnamese)
enterprises tend to produce products of lower technological intensity, such as lighting equipment andelectronic white goods that include fans and transformers, and compete in completely different markets
which are targeted primarily domestically. However, some of those enterprises have been successful inbecoming parts/components suppliers for export-oriented MNEs, which we will discuss later in thisreport. The export-oriented electronics production network of Viet Nam nevertheless remains primarily
MNE dominated.
This section provides a description of the sector to validate the dominant positions of MNEs in theelectronics sector of Viet Nam, using a unique dataset, entitled “Viet Nam Electronics Sector Dataset(VESD)”, which covers all the electronics-related enterprises that were registered and operating in Viet
Nam in 2014. This dataset includes basic information such as the name of the enterprise, location,
number of workers, turnover, and key products of each of the enterprise.5
A few interesting facts emerge from this dataset. First, out of the largest 100 enterprises, 99 are FDI
enterprises, and the remaining one was an SOE, which ranked 100th in the list. Second, the largest
20 enterprises employ 49.4 % of all workers. The largest 50 enterprises employ 69 %, while the largest
100 employ 82 %. Third, out of the largest 20 enterprises, 11 were Japanese, four were Korean, threewere Taiwanese, and one was American. The country of origin of the remaining enterprise could not be
identified.
Figure 3 summarizes the regional distribution of all registered electronics enterprises in Viet Nam.
According to this figure, more than half of all electronics enterprises (560 out of 1088, which is 51.5 %)in this country are located in the RRD region, which includes Hanoi, Hai Phong and their vicinity
provinces. This is followed by the SE region, which includes Ho Chi Minh City and surrounding areas,such as Dong Nai province.

5 The data in the VESD was extracted from the Enterprise Survey 2015 database, and was compiled by the VCCI as part of the ILO project asan “industry mapping exercise”.

20

FIGURE 3 – Number of enterprises (total = 1088)
24

Mekong Delta

90

Northeast

1088

Total number of enterprises

378

560

Southeast

Red River Delta

2

Central Highlands

25 9South Central Coast North Central Coast

Source: compiled by author using VESDFIGURE 4 – Number of workers (total = 325,583)
1,649

Mekong Delta

79,155Southeast

18

Central Highlands

38,383

Northeast

325,583

Total number of enterprises

186,452

Red River Delta

17,522South Central Coast

2,404

North Central Coast

Source: compiled by author using VESD

Figure 4 summarizes the regional distribution of workers in this sector. The trends show similar patters asthat of Figure 3: 57.3 % of all workers in this sector are in the RRD region. That is interesting because theSE region is typically considered to be more developed than the RRD region. One might therefore expect
a larger concentration of both the number of electronics enterprises and workers in the SE region. The
fact that the proportion of workers working in the RRD is larger than the proportion of the number ofenterprises also suggests that the average size of an electronics enterprise in the RRD region is also larger
than that of both the overall economy as well as of the SE region, which may also be counterintuitive.

21

TABLE 6 – Largest 25 electronics enterprises
Red River Delta (RRD)
Country of origin

City/ProvinceYear estsblished

Number of workers

1

Korea

Bac Ninh2009

38,8492

Japan

Ha Noi

2002

22,974

3

TaiwanBac Giang

2011

9,930

4

TaiwanBac Giang

2008

8,084

5

Japan

Hai Duong

2007

7,057

6

Japan

Binh Duong

2007

6,482

7

Korea

Bac Ninh

2010

5,516

8

Japan

Hoa Binh

1999

3,858

9

Korea

Bac Ninh

2008

3,857

10

Korea

Vinh Phuc

2008

3,589

11

TaiwanBac Ninh

2007

3,428

12

Japan

Hai Duong

2007

3,247

13

US

Bac Ninh

2013

3,243

14

Japan

Ha Noi

2006

3,040

15

Japan

Ha Noi

2007

2,893

16

Korea

Vinh Phuc

2010

2,877

17

Korea

Bac Giang

2008

2,466

18

TaiwanHa Noi

2010

2,433

19

Korea

Bac Ninh

2010

2,300

20

Korea

Bac Ninh

2008

2,297

21

Japan

Hai Phong

2005

2,264

22

Japan

Ha Noi

2007

2,224

23

Japan

Hung Yen

2012

2,134

24

Japan

Nghe An

2012

2,091

25

Korea

Bac Ninh

2012

2,017

Average

2008

5,966

22

TABLE 6 – Largest 25 electronics enterprises
Southeast Region (SE)Country of origin

City/ProvinceYear estsblished

Number of workers

1

Japan

Binh Duong2006

13,5082Japan

Da Nang

2009

8,560

3

Japan

Bac Ninh

2011

5,581

4

NA

Da Nang

2005

3,786

5

Japan

Ho Chi Minh

1995

3,155

6

Japan

Binh Duong

2005

2,994

7

Korea

Binh Duong

2000

2,861

8

Denmark

Ho Chi Minh

2007

2,744

9

Japan

Binh Duong

1999

2,678

10

Japan

Binh Duong

2001

2,526

11

NA

Quang Nam

2007

2,382

12

Japan

Quang Ngai

2013

2,200

13

Japan

Dong Nai

1996

2,122

14

US

Ho Chi Minh

2002

1,748

15

Japan

Binh Duong

2000

1,697

16

Japan

Hai Duong

2007

1,639

17

Japan

Hai Duong

2007

1,573

18

Japan

Ho Chi Minh

1997

1,553

19

Japan

Dong Nai

2008

1,507

20

Japan

Dong Nai

2012

1,406

21

Hong Kong

Binh Duong

2008

1,273

22

Japan

Binh Duong

1998

1,125

23

NA

Ho Chi Minh

2002

1,032

24

US

Ho Chi Minh

2010

958

25

TaiwanHo Chi Minh

1996

936

Average

2004

2,862

Source: compiled by author using VESD

23

Table 6 summarizes the largest 25 enterprises in the RRD and SE regions. A couple of features standout. First, while Japanese MNEs dominate in both regions (11 and 16 out of the largest 25 enterprises
in RRD and SE respectively), their concentration is higher in the SE region. Second, MNEs started
operating earlier in the SE region. While there was only one enterprise operating in the RRD region
in the 1990s, there were already six in the SE region. Third, the size of the enterprises in terms of thenumber of workers tend to be larger in the RRD than the SE region (while the average size of the top 25
enterprises in the SE was 2,862, the average for RRD was 5,966).
The differences in these sectoral characteristics between the two regions are probably due to the Government’s effort to attract investment in the RRD. It had attempted to catch up with the level of economic
agglomeration of the SE region, which at that time was already ahead of the RRD region by a significant
margin. Since then, new inflow of FDI into the RRD region has gained momentum. Major investment
projects such as that of Canon in 2001 and the more recent one by Samsung in 2009 have been the major
outcome of such Government policies, which have substantially transformed the industrial structure of
the RRD region.

3
Internal dimensions of labour andbusiness practice: Working conditions,process characteristics, and worker
attributes
The World Economic Forum’s Global Competitiveness Report provides some insights on how MNEs
perceive and assess Viet Nam as a destination of FDI. The Report’s Global Competitiveness Index (GCI),
which attempts to measure a country’s relative competitiveness vis-à-vis others, is a composite index
incorporating 12 “pillar” indices, with each pillar containing a further detailed set of specific indicators.
In terms of overall competitiveness, the 2014-15 edition of the report ranks Viet Nam 68th out of 144
countries, with a GCI score of 4.2 (maximum score is 7). Among the 12 pillars, the seventh pillar is most
relevant to employment, entitled “labour market efficiency”, and consists of a further 10 specific indicators, which are reproduced in Table 7.6

6 Most of the values of the indices come from the “Executive Opinion Survey,” while others include data from other sources. The ratio of women
to men in the labour force, for example, is taken from ILO’s Key Indicators of Labour Markets.

25

TABLE 7 – Global Competitiveness Index (7th pillar: Labor market efficiency) for Viet Nam
Indicator

Description of the question

Value

Rank/144

Cooperation inlabor-employer
relations

In your country, how would you characterize
labor-employer relations? [1 = generally
confrontational; 7 = generally cooperative]

4.2

79

Flexibility of wage
determinations

In your country, how are wages generally set?
[1 = by a centralized bargaining process;
7 = by each individual company]

5.1

60

Hiring and firing
practices

In your country, how would you characterize thehiring and firing of workers? [1 = heavily
impeded by regulations; 7 = extremely flexible]

3.9

65

Redundancy costs,
weeks of salary

Redundancy costs in weeks of salary

24.6

112

This indicator estimates the cost of advancenotice requirements, severance payments, andpenalties due when terminating a redundant
worker, expressed in weekly wages.
Effect of taxation on
incentives to work

In your country, to what extent do taxes reducethe incentive to work? [1 = significantly reducethe incentive to work; 7 = do not reduce incentive
to work at all]

3.4

86

Pay and productivity

In your country, to what extent is pay related toworker productivity? [1 = not related to worker
productivity; 7 = strongly related to worker
productivity]

4.6

23

Reliance on professional management

In your country, who holds senior management
positions? [1 = usually relatives or friends without
regard to merit; 7 = mostly professional managers
chosen for merit and qualifications]

3.5

117

Country capacity toretain talent

Does your country retain talented people? [1 = thebest and brightest leave to pursue opportunities
in other countries; 7 = the best and brightest stayand pursue opportunities in the country]

3.2

84

Country capacity to
attract talent

Does your country attract talented people fromabroad? [1 = not at all; 7 = attracts the best andbrightest from around the world]

3.4

74

Women in labor force,
ratio to men

Ratio of women to men in the labor force

3.3

23

This measure is the percentage of women aged
15–64 participating in the labor force divided by
the percentage of men aged 15–64 participatingin the labor force
Source: Adopted from Global Competitiveness Report 2014-15 and online data portal of the World Economic Forum.

26

It is worth noting that Viet Nam ranked forty-ninth out of 144 countries for this particular pillar, which
has been relatively high, compared to other pillars (GCI score was 4.4). Within these specific indicators,
Viet Nam was especially perceived as “competitive” in terms of pay and productivity and women in labour
force, ratio to men.
These results however need to be carefully interpreted. If the wages were truly reflecting workers’ productivity levels, this could suggest an efficient labour market and can be genuine sources of competitiveness.
However these assessments may differ significantly between employers and workers, especially wheneffective dialogue mechanisms are lacking at the enterprise level. For example, if working conditions are
not set through collective bargaining but are instead decided unilaterally by the employers, and if thisis perceived by workers as inconsistent with their contribution (productivity) levels, then the pay andproductivity indicator will not be assessed positively by these workers. The simple fact is that what is
considered to be “good” from the management’s perspective may not always be “good” from the workers’
point of view. Collective bargaining will become crucial to bridge this gap and to reach mutually agreeable working conditions (especially on their pay levels), which should constitute the basis of this indicator. This report will argue that this issue is not just important conceptually, but also crucial practically forsustainable business performance, especially in a labour market where demand for workers, particularly
skilled workers, is expanding rapidly in relation to its supply.
From our interviews with representatives of electronics enterprises, particularly those that cater to theexport markets, there was a great degree of similarity in terms of their workforce composition, which issummarized in Figure 5.

FIGURE 5 – Composition of workforce

Management

Foreign nationals
dominance

Engineers, professional
office staff

Engineers: Male dominatedProfessional staff: no particulargender trend

Requirement: College

15–20%

Technical workers,
office staff

Technical workers: (experienced
line operators)
Staff: no particular gender trend

Requirement: none

80–85%

Line operators

Women dominate this category.
Unskilled tasks

27

Most of the MNEs in which we conducted interviewed had different job functions within theirworkforce, which can be roughly classified into four categories. Out of these four, three, including(1) management, (2) engineers and professional office staff, and (3) technical workers and office staff, wereregarded as “skilled” positions, with skill intensity descending in this order. The workers in the fourthcategory, line operators, were considered primarily to be “non-skilled”. The majority of the workforce ineach of the enterprises was comprised of line operators, with typically around an 80 % to 85 %.
Each of these job functions had slightly different attributes. The management positions were mostly
dominated by foreign nationals, who were sent from their home country headquarters to directly
manage their subsidiaries in Viet Nam. There were also cases where Vietnamese nationals were appointed
to this functional level; however, these cases are still rare. The engineers and professional office staff (suchas accountants and legal advisors), and technical workers (highly experienced line operators who canmanage production lines and are in supervisory positions) and office staff were considered essential todaily operations. These two job categories tended to be filled by Vietnamese nationals.
The fourth category (line operators) was typically dominated by women. The workers undertook simple
and repetitive tasks, and were almost universally perceived to be unskilled. While the three “skilled” positions required a college- or vocational-school-level education, there were no specific requirements for line
operator positions. This is manifested in the high ratio of female workers in the Vietnamese electronics
sector in official statistics, such as those shown in Table 3, and also in the high GCI score for “women inlabour force, ratio to men.” It is interesting to note that the shares of female workers in operation lines inlocal Vietnamese enterprises tended to be much lower – between 50 % and 60 %.
The fact that the sector employs a disproportionately higher share of female workers can be positiveor negative, depending on the particular job categories and associated working conditions. Literaturesuggests that foreign-owned enterprises prefer female workers because of their perceived docility anddexterity (Barrientos, 2001; Vind, 2008). From our interviews, one of the main reasons for the highdependence on female workers in MNE operation lines seems to be related to the particular processattributes of the products they produce. The MNEs that were a part of the interview process were all
primarily export-oriented, except one that had different subsidiary units producing different products
for different markets. They tended to have a very high proportion of female workers because, according
to the interviewees, the tasks in their assembly lines were “repetitive, fine and detailed”, which were considered as “not suitable” for male workers. The products that these MNEs produced were mostly small
and technology intensive. While some were assembling final products, many were producing parts andcomponents to be assembled by other enterprises through forward linkages, for final items including
mobile/smart phones, camera devises, health and medical equipment, and computer-related products,
including printers. Male workers in these MNEs were often assigned to tasks that were less repetitive andthat required more physical capabilities in shop floors.7 However, one manager of an MNE noted thatdifferences in workers’ sexes did not have any effects on productivity or suitability, and thus could bejust a gender-biased view of worker-job attributes. However, as the MNE interviewees were quite hetero­geneous in terms of both products and processes, it remains difficult to provide a definitive conclusion
at this point.
That a significantly larger share of assembly jobs are undertaken by female workers is not necessarily
a problem per se. Feminization of the workforce becomes a problem, however, when female workers
are systematically discriminated and employed disproportionately in unfavourable tasks associated with

7 One subsidiary production unit of a Japanese electronics MNE, which produced white goods such as refrigerators and washing machines forthe domestic market, had an 80 % share of male operators in its production line. As these types of products tend to be relatively bulky, they
are often assembled in close proximity to their final markets. The primary motivation of MNEs is thus market seeking rather than efficiency
seeking. The latter is more typical for export-oriented offshore production. As large and heavier parts and components were handled in theassembly lines for these types of products, they were “more suitable to male workers with physical strength” according to the interviewees.

28

worse working conditions and limited prospects of skill upgrading and promotion, and substantially lessfrequently in more technical and professional positions with higher skill components in comparison totheir male counterparts (Tran and Nørlund, 2015). Another potential issue arises when female workers
are employed more frequently because of the perception that they are relatively easy to hire and fire when
flexibility in workforce adjustment becomes increasingly important (Barrientos, 2001; Vind, 2008). The
main concern is thus whether differences in gender-related worker attributes lead to such discriminatory
employment practices, and further translate into longer-term disadvantages for female workers. Similar
issues could arise between domestic migrants and local workers; local workers are considered to be at anadvantage because their probability of accessing other sources of incomes (particularly rental income) ishigher in comparison to migrant workers. Local workers are therefore less likely to be stuck in jobs with
undesirable working conditions (Vind, 2008).
The shares of male workers in non-assembly positions (referred to widely as “staff” by the MNE interviewees) in the MNEs and Vietnamese firms that took part in the interviews were not significantly higher
or different than female workers in similar positions. However, engineer positions were, in most cases,
dominated by male workers. In most MNEs, the average wage levels of non-assembly staff workers tends
to be higher than assembly workers, as the tasks could entail functions that are intrinsically of higher
knowledge intensity, therefore requiring much higher educational and skill levels than for line operators.
However, as there were wide variations in the positions of these staff members, wage levels were also very
diverse within these MNEs. In fact, some of the wage levels of staff were about the same as those of line
operators. The wage levels of engineers on the other hand tended to be higher than average compared toline operators. However, the number of these positions was much smaller than that of jobs in both assembly and non-assembly functions. Educational requirements for engineers were typically at the university
level, with appropriate training in relevant engineering fields. While demand for workers with competentengineering and other technical skills is expanding rapidly, the fact is that there is a very limited supply ofsuch skilled workers in Viet Nam. As we will discuss later, this is one of the key bottlenecks in the Vietnamese electronics sector, which is recognized by most stakeholders in this industry, including employers(both of MNEs and local Vietnamese enterprises), workers, and the Government.
The fact that a large proportion of the workers in export-oriented electronics MNEs in Viet Nam werefemale workers can also be interpreted to mean that only a very small number of male workers have beensuccessful in taking up such jobs in this sector, with the notable exception of engineering-related jobs
and those that require physical work. In general, job opportunities were expanding much more favourably for female than male workers, particularly for non-skilled workers in the booming export-oriented
electronics sector. In addition, most MNEs were finding it increasingly difficult to recruit and retain
female workers, especially when they operated in or near Hanoi where alternative job opportunities wereavailable, or in areas where a large number of similar enterprises were located, as competition for theseworkers was much more severe.
The ability of MNEs (as well as non-MNEs) to maintain flexibility in their labour force according toseasonal business cycles has become difficult under the current Vietnamese Labour Code, which cameinto effect in 2013. The legislation now allows employers to employ workers under fixed-term contracts
for only up to 36 months. Beyond that, a fixed-term contract must be converted into a permanent one.
This effectively makes it more difficult for employers to fire workers. This new Labour Code at the sametime, however, introduced a new section on labour outsourcing, which allows enterprises to hire temporary workers through licensed agencies. Some of the MNEs that took part in interviews had resorted tousing such temporary workers to maintain their ability to adjust their workforce as needed.

29

However, due to the increasing difficulties in hiring workers under the existing local labour market
conditions, most MNEs recognized that the ability to attract workers was more important than theability to fire these workers during off-peak seasons. More importantly, most of the MNEs that participated in the interviews, generally Japanese MNEs, positively preferred to establish a stable and longterm employer-worker relationship. These MNEs typically put significant resources into upgrading theirworkers’ skills and knowledge, particularly to train them as mid-level managers in both assembly lines
and administrative functions. This was considered to be one of the key elements defining the enterprises’
operational efficiencies and thus overall competitiveness in the long run. One of the most problematic
issues for them was that these middle managerial level workers (engineers, (professional) office staff andtechnical workers) which they had trained at their own cost, were often hired away by other enterprises.
In relation to this, the GCR also reports problems as perceived by employers, apart from the GCI
indicators. In this, employers have identified “inadequately educated workforce” as the third largest
problematic factor in Viet Nam out of the 16 issues (the first and second greatest issues were “access tofinancing” and “corruption,” respectively) (WEF, 2014). This problem relates directly to skill shortages
at the industry level, particularly at the higher job categories, as shown in Figure 5. This is one of the
problems most frequently discussed in relation to labour market conditions in Viet Nam. For example,
a World Bank report suggests that significant skill gaps exist in Viet Nam in the context of changing
economic structures amidst rapid economic development. More workers with skills to absorb increasingly complex tasks and new technology are needed.
This has important implications on the overall economic development trajectory of Viet Nam. As alreadydescribed, the Vietnamese electronics sector is primarily assembly oriented, and line operators (mostly
female) undertake simple and repetitive tasks. However, it must eventually upgrade and evolve to caterto the more complex and higher value-added functions in the electronics value chain, particularly if it
wants to avoid the “middle-income trap”. The lack of a workforce with relevant skills and knowledge in
the national economy will thus eventually become a critical bottleneck for sustained growth and broadbased development.
The issue of skill shortages is thus an important one, and the quality and relevance of the higher education system in Viet Nam is mainly held responsible for this (World Bank, 2008). While we address thisissue related to skills and human resources in the next section, this is one of the main reasons why most
MNEs have internalized training systems and have built their competitiveness (and reputation) aroundthese initiatives.

4
External dimensions of business andlabour practices: FDI policy,
inter-firm relationships, and institutions
The Vietnamese Government has for some time placed emphasis on the electronics sector, positioning
it as a key industry to lead its overall national development process. In this context, the Government
has particularly been active in encouraging FDI in this sector since the 1990s, with concrete policies
that include such preferential measures as reductions in corporate income and value added taxes (VAT),
land-rent reduction, and import/export duty exemptions.8 The sector continues to feature prominently
in the country’s industrial policy front as one of the target industries to be promoted, as outlined in thePrime Minister’s Decision, entitled “The plan of action for development of electronics industry (1290/
QD-TTg)” of 2014. The Plan includes target issues related to the development of the supporting industry, human resource base, domestic and export markets, further attraction of FDI, and the creation of anelectronics industry cluster, among others.9
While these policy measures have been successful in terms of attracting incoming FDI from MNEs, there
are arguments that these efforts have put local electronics enterprises, including state-owned enterprises,
at a relative disadvantage as there was no policy support that specifically targeted and supported them
(Hayashi, 2013).
Such a view was especially strongly expressed during our interviews with local Vietnamese enterprises.
In principle, preferential treatment of MNEs may not necessarily be unfair to or have negative effects
on local Vietnamese enterprises, if the MNE target markets are different from those of local enterprises.
Most of the large Japanese and Korean electronics MNEs that participated in the interviews were infact registered as an export processing enterprises (EPEs),10 while almost all of the local enterprises thatparticipated in the interviews were primarily focusing on the domestic market. Moreover, even whentarget markets were the same for MNEs and local enterprises, the likelihood that they produced different
products was very high, particularly in terms of technology intensity. As such, while direct competition
between MNEs and local enterprises can theoretically work against local enterprises, such cases may havebeen rare and do not explain the disadvantages perceived by local enterprises entirely.
Rather, preferential FDI policies may have affected local enterprises indirectly through local labour
market effects. These policies have no doubt led to increased labour demand, which could have disproportionately crowded out Vietnamese electronics enterprises from local labour markets. Most local enterprises in fact found it increasingly difficult to recruit and retain workers due to the perception that MNEs

8 Foreign Investment Agency website (http://fia.mpi.gov.vn/detail/689/investment-incentives), accessed on 8 June 2015.
9 The master plan is a follow up to Decision No. 1043 of the Prime Minister (1043/QD-TTg) approving “Vietnam’s industrialization strategy
within the framework of Vietnam-Japan cooperation through 2020 with a vision toward 2030.” This Decision declared electronics to be one of
the six target industries to be promoted under this Viet Nam-Japan cooperation scheme.
10 An EPE is an enterprise that operates in export processing zones or other types of authorized industrial zones, and that produces products forexports. They are exempt from VAT and import/export duties.

31

offered better conditions to workers, especially in terms of wages. Some explicitly linked this with thepreferential treatments MNEs receive, particularly with reduced land rent and corporate tax reductions/
exemptions. As we have no means to control other enterprise-specific attributes that can affect wage levels
and other working conditions (i.e. productivity levels, factor intensity, product variation, and differencesin value chain positions), at this stage we can make no conclusive statements linking better working conditions of MNEs to such preferential treatment. This however remains an important policy coordination
issue, particularly in terms of compatibility of local industrial development and FDI attraction.
On the other hand, an increase in the number of MNEs in Viet Nam through preferential FDI policies
may in fact have a favourable effect on local enterprise development and employment creation overall, especially if substantial production relationships exist between MNEs and local enterprises throughsubcontracting, procurement arrangements (backward linkages) and other types of outsourcing and offshoring arrangements. This would not just generate employment in local enterprises, but probably also
help process and product upgrading through technological transfers from MNEs. These types of interfirm linkages would also affect working conditions in local enterprises, and could function as important
catalysts to build local capacity to implement socially responsible business practices.

BOX 1 – Upgrading through linkages with MNEs: The Case of the Vietnamese Garment Industry
Stable and long-term inter-firm relationships between MNEs and local enterprises were key tolocal industrial upgrading. Goto et al. (2011), for example, argue that the upgrading trajectories
of local Vietnamese garment enterprises have been very different depending on market orientationand value chain coordinators. Buyers in Viet Nam oriented to the United States market tended tooffer local garment companies very large order volumes with relatively simple and easy productspecifications. Therefore the involvement of buyers (MNEs) in terms of technological transfer
and monitoring was very limited as the need for technological transfer was relatively small.
Japanese-market-oriented businesses, on the other hand, had much smaller volume with more
complex and sophisticated product specifications. These value chains are in most cases coordinated by Japanese buyers (MNEs), and because the technological requirements were higher thanthose oriented to United States markets, technology transfers from these MNEs to Vietnamese
garment suppliers were much more important and occurred more intensively. Because technology was typically transferred at the expense of Japanese MNEs (primarily through regular on-site
consultations between Japanese technicians and Vietnamese suppliers), these Japanese MNEs
had a strong incentive to maintain a long-term buyer-supplier relationship. In short, value chainscoordinated by Japanese MNEs were seen as much less dynamic, smaller in business size, butmore stable and with better prospects for process and product upgrading.
The point is that such direct involvement in technological transfer is a relationship-specificinvestment for MNEs, which can only be captured, or collected over time in stable and longterm relationships. In United-States-oriented value chains, on the other hand, supplier-buyer
relationships tended to be established in a much more competitive fashion with much less direct
involvement in technology transfer, and therefore had a much shorter time horizon in terms ofinter-firm relationships. These strategic differences in inter-firm relationships primarily camefrom differences in product specifications, order characteristics, and market requirements forthe products, and both are in fact completely economically rational from the supplier perspective. For Vietnamese garment suppliers, both chains had their own advantages and disadvantages, the relative importance of which was mainly dependent on their levels of technologicalaccumulation and their positions in their respective value chains.

32

Local industrial upgrading in processes and products through linkages with MNEs is actually observed
frequently in the garment sector of Viet Nam (see Box 1). The difference between the garment andelectronics sectors in Viet Nam is that unlike the garment sector, inter-firm linkages between MNEs
and local Vietnamese enterprises were widespread in the garment sector, while still quite rare in theelectronics sector.11 Interviews with MNEs indicate that the outsourcing of particular functions to local
enterprises is almost non-existent, and procurement is typically limited to simple and low value-added
inputs such as carton boxes and other packaging materials. Most of the local procurement is limited toJapanese, Korean, or Taiwanese suppliers that have also established production capabilities through FDI
arrangements in Viet Nam. The lack of indigenous local supporting industries is an issue that has beenrecognized widely as a key weakness in the industrial structure of Viet Nam across sectors (Ohno, 2009).
Almost all of the managers at the MNEs we interviewed found this to be one of the key bottlenecks intheir daily operations as it limits their supply source, requires longer lead times (especially when inputs
are imported), and keeps input costs relatively high.
Nevertheless, some of the MNEs were actively looking at local Vietnamese enterprises as potential
suppliers and subcontractors. While most of the procurement from local enterprises is currently limited
to goods such as packaging and printed materials, these MNEs are increasingly experimenting with local
procurement of simple components, parts and equipment such as metallic moulds. In doing this, theinitial screening processes for potential local suppliers are typically meticulous and intensive. However,once a potential future supplier is identified, those MNEs tend to adhere to their relationship with these
local enterprises, and actively help to upgrade their capacity to meet the required standards throughroutine visits and informal consultations. The range of advice from such MNEs is often comprehensive,
ranging from specific shop-floor processes and other technical issues to administrative functions such as
human resources management strategies, and, in some cases, with even more generic compliance issues.
In most cases the MNEs maintain a long-term involvement with such local suppliers. For such MNEs,
maintaining such an inter-firm relationship is costly, but at the same time it can evolve into an important
backward linkage through which collective efficiency can be realized. The next section will describe someof the actual cases in which such cooperative and long term interfirm relationships are built.

11 It should be noted that, like the electronics sector, the Vietnamese garment sector is also characterized by labour-intensive assembly functions. However, while local Vietnamese enterprises tend to cater to that need, it is almost entirely undertaken by FDI enterprises (MNEs)
in electronics. The inter-firm relationship between the MNE and local enterprises in the garment sector is thus primarily an outsourcing
arrangement. However, backward linkages with the local economy remain limited, as is the case in the electronics sector.

5
Aligning competitiveness andsocial responsibility
in core business practices
The promulgation of CSR commitments to the wider public has become an increasingly importantelement in the corporate strategies of MNEs that operate on a global scale and coordinate complex
transnational production and distribution systems. While there is no universally agreed definition of
CSR, we will refer to voluntary, enterprise-led initiatives that typically go beyond regulatory compliance.
In most cases MNEs have developed enterprise-specific codes of conduct as operational guidelines toensure socially responsible behaviour. Codes of conduct are practically internal regulations that explicitly stipulate detailed rules. We will refer to arrangements that attempt to ensure socially responsible
corporate behaviour through such frameworks as de jure mechanisms. In the electronics sector, quite
a few electronics MNEs have adopted the EICC Code of Conduct as their own. The EICC is a highly
influential “non-profit coalition of electronics companies committed to supporting the rights and well­being of workers and communities worldwide affected by the global electronics supply chain”12, withover 100 major electronics MNEs and first-tier suppliers in the world as its members.
During our interviews in Viet Nam, the representative of one Japanese MNE mentioned that they had
been requested by one of their buyers (another major electronics MNE) to observe the EICC Code of
Conduct. This Code is monitored through third party auditing firms, which makes multiple visits tothese suppliers and conducts intensive audits using a comprehensive checklist consisting of 105 items
specified by the EICC. The items include preventive measures for child labour, overtime control, andoccupational safety and health standards in the workplace.
According to this MNE, the auditors assess compliance with the Code of Conduct based on three key
methods: (1) interviews with workers; (2) on-site (shop floor and office) inspections; and (3) whether
relevant CSR practices as defined by EICC are explicitly written and documented as internal regulations
and/or reflected in operational manuals. Based on these, the auditors prepare quantified assessment
results and report back to buyers, which will be used to rectify “shortcomings” and, in some cases, torenegotiate the terms and conditions of their business deals, as well their overall relationships with the
suppliers.
One of the intriguing issues related to the implementation of the EICC’s Code of Conduct is that while
in most cases compliance with their standards come from buyers, the actual auditing costs, includingthat of third party auditing firms, seem to be typically borne by the suppliers. The cost pressures of theseexternal audits are regarded as very significant by suppliers, and such audits would probably be very
difficult for local Vietnamese enterprises to observe given that their financial resources tend to be far
more restricted.

12 From EICC web page (http://www.eiccoalition.org/about/), accessed on November 11, 2015.

34

While such de jure mechanisms may be an effective way to ensure socially responsible practices, it isimportant to note that these types of behaviour can also exist without explicit rules designed specifically from a CSR perspective. In other words, socially responsible corporate practices can, and often do,
evolve out of pure business strategies. As these types of corporate behaviour are not the result of codesof conduct designed to bind corporate behaviour to achieve specifically determined CSR goals but are
instead self-enforcing outcomes of pure profit maximization strategies, we will refer to them as de facto
mechanisms.
The ongoing trend to implement CSR compliance under the de jure system views the existence of written
internal regulatory frameworks as the key component of enterprise commitment to responsible corporate
behaviour. As such, even if an MNE had in fact already institutionalized socially responsible operationsin practice (de facto), without explicitly setting down those rules in internal regulations, that MNE would
be assessed negatively and punished under the EICC rules. And because such assessment results are used
to renegotiate the terms and conditions of ongoing buyer-supplier relationships, they would still havestrong (and in most cases negative) effects on the supplier side, as they may not always accurately reflect
actual workplace practice.
As outlined at the outset, unlike de jure CSR activities, which depend more on check lists with a strong
focus on the documentation of rules and regulations, de facto mechanisms, which are equally important,are core business practices that are also effective in ensuring responsible social outcomes, particularly
in terms of working conditions. We recognise that such practices are not necessarily designed as CSR
practices, nor are they implemented through specifically designed codes of conduct. Instead they areoperationalized as core business strategies that have a direct bearing on competitiveness, while still beingde facto socially responsible. It should be noted, however, that we do not necessarily see de jure and defacto practices as opposing concepts or complete substitutes. Rather, in many cases they are mutually
reinforcing and exhibit strong complementarity. The following section attempts to outline de facto labourand business practices, and to document a selection of model cases from selected MNEs operating in
Viet Nam.
As discussed at the outset, it should be noted that most of the model cases concern Japanese MNEs;
this is primarily because of the disproportionately larger number of Japanese MNEs operating in Viet
Nam. In addition, it is widely known that overall corporate behaviour and particular operations at mostJapanese enterprises are traditionally less frequently guided by regulations or manuals. Instead, they tend
not to follow any explicitly written rules, which made it relatively easier to identify good model practices
in this respect. Needless to say, this does not mean that such model practices are limited to Japanese
MNEs; in fact, we were able to identify a strong case in a non-Japanese MNE as well, which we will
also introduce in this section. Nevertheless, as the primary aim of this study is not to statistically analyse
sectoral trends of MNEs using a representative sample, but instead to document good practices and to
extract key implications from them, the representativeness of the sample should not be the primary issue.
What is important is the context and details of the individual cases to be generalized and contextualized,
and used as reference points for future action.
Another point merits attention. The representative of MNEs (and some local enterprises) we have interviewed already had specific CSR activities that mostly targeted outside communities. They included programmes such as the provision of scholarships to local schools as well as activities, such as tree planting
and fundraising, for the disabled. These have been regarded as important as they increased worker moraleand loyalty to the company, fostered better relationships with the local communities, and were, of course,
intrinsically good. While we do recognize the importance of such philanthropic community outreachprogrammes, this report focuses on socially responsible labour and business practices that constitutethe core strategies in the daily business operations of these MNEs. This is particularly important from asustainability point of view.

6
Model cases of MNE policies
and practices in the Vietnameseelectronics sector
The question of how enterprise performance and socially responsible behaviour interact and play out has
always attracted significant attention. Socially responsible practices are often seen as costly and harmful
to competitiveness. While this may be true for some activities, we have been able to identify several
successful cases during our field work in Viet Nam in which some MNEs have aligned their core business strategies around practices that have become de facto socially responsible. These practices were also
directly relevant to the core principles outlined in the MNE Declaration. The main point is that suchpractices are typically self-enforcing and therefore sustainable. We will introduce three model cases ofsuch MNE practices, and attempt to link and interpret these practices in light of the principles set forthin the MNE declaration.

6.1 Building supplier capacity and achieving collective efficiency:
The cases of Fuji Xerox, Apple and Foster Da Nang
Fuji Xerox is a major Japanese MNE that manufactures a wide range of electronics, including “copiers,
printers, publishing and image systems, network products, communication and translation tools”.13 Fuji
Xerox’s operations in Viet Nam include an affiliated manufacturing plant in Hai Phong city (Fuji Xerox
Hai Phong Co., Ltd.), which is a key port city in North Viet Nam located roughly 100 km to the east of
Hanoi. This affiliate manufacturing plant focuses primarily on the production of low-end printers, multifunction devices and related equipment. While it is itself a major brand manufacturer, it also supplies
its equipment to other electronics MNEs under OEM arrangements.
This Hai Phong affiliate was established in 2012, and began operating in 2013. It currently employs
about 1,700 workers, of which 1,500 are operators in their assembly lines (70 % female). There are about
150 workers at the middle-management level, of which roughly half are female. In addition to local
workers, there are about 60 expatriates of Japanese, Chinese and Korean nationalities. This plant is aspin-off from a bigger manufacturing site in Shenzhen, China.
One notable business practice of Fuji Xerox is related to its strong commitment to building the capacity of its supplier firms in terms of socially responsible corporate conduct. They occasionally organize
seminars and other training opportunities for suppliers with a view to local labour code compliance, andto help with the implementation of private corporate codes of conduct that go beyond such regulatorycompliance. For instance, Fuji Xerox Hai Phong organized an ethical procurement seminar in 2014, towhich about 40 suppliers were invited to attend. It first asked its suppliers to conduct a self-check exercise

13 http://www.fujixerox.co.jp/eng/ (accessed on November 26, 2015)

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using the Fuji Xerox Self-Checklist, which is based on the EICC Code of Conduct and Self-Assessment
Questionnaire. These results were not used to evaluate or punish them; instead, they were used as a
guiding tool to help them abide by the Code of Conduct. Based on these self-evaluations, Fuji Xerox
dispatched their own technical experts on areas such as the environment, safety, and labour management
to these suppliers to provide tailored and detailed consultation services and advice to overcome the shortcomings identified through the evaluation exercises.
BOX 2 – Corporate mottos: Stylish slogans or strategic business guidelines?
Core business philosophy and principles are typically determined at corporate headquarters
and are embedded in corporate mottos, reflecting how enterprises see the core values of theircorporate foundations. Mottos are often used as guiding principles at critical junctures during
the course of their businesses. Interestingly, most of these mottos do not just reflect upon theircore business domain, but also elaborate on their relationship to the wider society.
Some more specifically address how business should be conducted in relation to other stakeholders. In the case of Japanese electronics MNEs, this seems to be the norm. An example ofthis are mottos that depict ideal relationships with buyers and suppliers, which often actually do
guide corporate strategies in terms of the particular governance and contractual arrangements inbackward and forward linkages.
For example, some of the representatives of Japanese MNEs interviewed had corporate mottos
such as “Kyo-zon Kyo-ei (共存共栄, co-existence and co-prosperity)” (Fuji Xerox) and “Kyo-ei
Kai-sya (共栄会社, co-prospering company)” (Panasonic). Both of the enterprises take theirrelationships with their business partners (particularly their suppliers) very seriously, and focus
on establishing trust-based and long-term relationships, as discussed in this report.
In the case of Fuji Xerox, this has always been their guiding principle, and such behaviour has
motivated their suppliers to follow them when they have decided to establish a plan in otherregions or countries, such as Viet Nam. The current local supply chain of Fuji Xerox in Viet Nam
is based on these inter-firm relationships built on the Kyo-zon Kyo-ei principle. Their challenge is
to extend this practice to the local economy and invite new partner enterprises into their supply
chain. Likewise, in the case of Panasonic, they tend to actively support technological upgradingof their suppliers by “giving back” some of the profits made out of these relationships by providing technical support to upgrade their process capabilities. The idea behind it is a strong belief,reflected in the Kyo-ei Kai-sya principle, that the performance of Panasonic is dependent on theperformance of their suppliers, and therefore doing so is important – not as an attractive slogan,but as a practical corporate strategy.

The primary motivation behind such practices has not been to prepare their suppliers to properly abideby the Code of Conduct per se, but to prevent the occurrence of line stop at both their facilities and thoseof their suppliers. Line stop is a key phrase used at Fuji Xerox. It literally means production line stoppages due to serious disruptions, including to the timely supply of inputs, such as parts and components.
Disruptions in input supply can happen due to multiple reasons. Worker-employer disputes related toworking conditions (and the strikes that follow) at supplier premises typically constitute the majority ofsuch disruptions. Frequent occurrences of such events at supplier facilities strongly impact the competitiveness of the supplier concerned as well as that of Fuji Xerox. Therefore, while such initiatives tend to
be costly for Fuji Xerox in the short run, their commitment will pay off in the long run as it will have37

a positive effect on competitiveness through operational efficiency gains, and by reduced incidence ofdisruptions in production lines (line stop) at both the suppliers and Fuji Xerox. Fuji Xerox is unique inthe sense that it has actually analysed and verified that such initiatives will lead to long-term gains using
evidence-based quantitative data.
The initiative to build supplier capacity in terms of socially responsible corporate practices was first
implemented in the Fuji Xerox Shenzhen plant in 2007. That initiative is now being replicated in theplant in Hai Phong. As these initiatives have evolved as one of the key components of its core businessstrategy, Fuji Xerox has been monitoring these activities in relationship with the suppliers’ capabilities
very closely, collecting quantitative data to assess how such activities have affected the frequency of line
stop incidents and profit levels. Systematic cost-benefit analyses have been conducted using the significant amount of data gathered. The initial results seem to strongly imply that there were robust andpositive correlations between such practices and profits. One of the main findings was that the lack of
dialogue between workers and employers had been the main contributing factor to line stops, which hadin turn disrupted operations at the Fuji Xerox factory in Shenzhen.
These initiatives have thus been highly effective in improving systematic operational efficiencies at theprocess level, leading to better corporate performance. In addition, because such practices have evolved
from and are completely compatible with competitiveness-enhancing strategies, they tend to be sustainable as well.
Apple is another electronics MNE that conducts activities with its suppliers that have similar capacitybuilding effects. Apple is an American company, and is also one of the world’s largest electronics MNEs.
It produces a broad range of electronics and related products, including computers, other electronic
devices and software. Apple’s business model differs significantly from that of the Japanese or Korean
MNEs in the sense that it does not own its own production facilities. Its internal core functions areprimarily in non-manufacturing-related domains, such as research, product development and marketing,and most of its production processes are undertaken by partner companies through arms-length interfirm relationships. We were able to interview representatives of both Apple and one of its key partner
enterprises, Foster Da Nang.
Foster Electric Company Limited is a Japanese electronics MNE that produces parts (mainly acoustic
components). It operates two plants in Da Nang, the largest city in the central region of Viet Nam. Foster
Da Nang, a subsidiary company of Foster Electronics, employs about 8,000 workers in its plants, whereroughly 80 % are direct operators. These direct operator positions are practically dominated by female
workers, as they are perceived to be better suited to handle work that involves small parts and components.
The Apple Supplier Code of Conduct includes requirements that pertain to such issues as occupationalsafety and health, respect for worker rights, and environmentally responsible practices in all activities
related to Apple. Supplier audits are conducted based on this Code of Conduct, in which all violations
are identified. These violations are systematically addressed through a “Corrective Action Verification”
process, in which suppliers must first submit a plan (Corrective Action Plan) to rectify shortcomings
within 90 days. Once the Corrective Action Plan is approved, the activities related to its implementation
are monitored. Technical support is provided by Apple throughout the process.14
Foster Da Nang acknowledged this verification process to be highly valuable, not only because it helpedwith Apple code compliance, but also because the process allowed the company to become more effective in addressing strategic business issues related to human resources management. One of the concrete
examples of better business outcomes attributed by Foster Da Nang to its relationship with Apple isgreater worker satisfaction with working conditions due to better management systems. This has mani-

14 For more details on this process, please visit http://www.apple.com/supplier-responsibility/accountability/ (accessed on April 20, 2016).

38

fested in the low turnover rate of 1.1 % per month.15 While the local labour market of Da Nang city is
still relatively less competitive than those in Ho Chi Minh City and Hanoi, it has become increasingly
difficult to recruit and retain workers, and the provision of good working conditions has become one
major element in enterprise capacity to manage that issue.
Apple considered its engagement with its suppliers as one of the key sources of their overall competitiveness. This was probably reinforced by the fact that all of their production processes take place outside of
the “boundary of the firm”. Because their particular business model is – more than those enterprises that
own their own production units – based on a mutually dependent structure, Apple’s efforts to build thecapacity of its suppliers makes sense as a business strategy, even if this is costly in the short term. Moreover, it would be important to note that Apple regards its Corrective Action Verification Process not justas a tool to build supplier capacity to observe the Code of Conduct, but more importantly as a tool forApple to engage and build trust-based relationships with its suppliers.
These cases are good examples of how core corporate business practices can at the same time be socially
responsible. The key to the successful implementation of such initiatives seems to be the level of trust
in inter-firm relationships, specifically between buyer MNEs (Fuji Xerox and Apple) and their suppliers(Foster Da Nang, in the case of Apple), which can only be built and maintained through regular dialogue.

6.2 Building trust and committing to dialogue outcomes: The case of Panasonic
One of the characteristics that were widely observed among the MNE interviewees was that they
preferred to establish long-term relationships with their workers as well as with their suppliers. As in thecase of Fuji Xerox, trust-based relationships between employers and workers is a condition as well as an
outcome of de facto socially responsible corporate behaviour, which tends to be mutually reinforcing.16
As outlined earlier, the electronics sector of Viet Nam is primarily characterized by labour-intensive
assembly functions, and Viet Nam has comparative advantages in these types of business activities. Whilevalue addition in such processes remains relatively low, it is still critical for MNEs to increase operational
efficiencies in this functional area as it has strong effects on their overall competitiveness. Within thecontext of international vertical specialization in an increasingly globalized and competitive economic
environment, dynamic operational efficiency gains can be achieved through process and product upgrading in their respective value chains. Process upgrading typically takes the form of adopting advanced
process technologies, which includes the introduction of new machinery, as well as the rearranging
and resequencing of existing production lines. Product upgrading involves the production of higher
value-added products, which tend to be highly correlated to the level of process technologies applied ineach MNE workplace. A cross-cutting factor affecting upgrading trajectories in terms of both process
and product is worker skills, which has been regarded as one of the most important aspects that determine MNE competitiveness.
As the functions these electronics MNEs in Viet Nam undertake are highly labour intensive, recruiting
the needed workers is important. However, it is probably more crucial that they be able to retain theworkers that they currently employ. As the Vietnamese economy is growing robustly with new sectors
and job opportunities emerging, particularly in the service sectors, the demand for labour, especiallyskilled labour, has increased much more rapidly than the supply in local labour markets. This is especially

15 A monthly turnover rate of 1.1 % is quite low by Vietnamese electronics sector standards. The rate can be as high as 4 % per month.
16 There is a great deal of literature suggesting that long-term and consistent inter-firm relationships are one of the main characteristics of Japanese industrial organization. For example, see the seminal works of Masahiko Aoki.

39

true for locations in or near metropolitan areas such as Hanoi and Ho Chi Minh City. These recentchanges in labour market conditions have been affecting the electronics MNEs in Viet Nam as well, as
their ability to dynamically upgrade is dependent on the availability of workers (and vice versa). Attracting workers has become exceedingly important.
Panasonic serves as a good model as to how this can be achieved through socially responsible corporate
practices that, at the same time, enhance competitiveness. Panasonic is another Japanese electronics
MNE that operates five manufacturing affiliates in Hanoi, Ho Chi Minh City, Hung Yen and Binh
Duong provinces. At these manufacturing plants, Panasonic produces a wide variety of products, including appliances such as refrigerators and washing machines, distribution panel boards, security camera
systems, and mobile phone parts, among others. It focuses not just on export markets but also produces
for the domestic market. Out of the five manufacturing affiliates, two are export oriented and three are
primarily domestic market focused.
Panasonic currently employs over 8,000 workers in its affiliates in Viet Nam combined. Like many other
MNEs in Viet Nam, they are also increasingly facing difficulties in recruiting and retaining the workers.
As demand is stronger relative to supply, workers in this sector have become mobile and easily move toother enterprises where wage levels are higher. Retaining, let alone recruiting, relatively skilled workers
for administrative job categories is very hard, and this is even more difficult for workers suitable formanagerial positions. In such an environment, Panasonic often holds recruitment seminars at key local
universities in order to recruit new workers. However, as the shortage of such potential workers withskills for managerial positions is significant, Panasonic often attempts to fill these position by promoting
line operators and placing them in administrative or middle-level management positions.
Workers’ skills, both tangible and intangible, matter. When it comes to administrative and managerial
positions, however, the skill sets needed become more complex than those required for line operators.
Interviews conducted with representatives of Panasonic, as well as of other MNEs reveal that while it
was in most cases very difficult to exactly describe the particular skills that were required for these key
administrative and managerial positions, it seemed that a large part of it was related to intangible skills,
which were often also referred to as “soft skills”. These typically included skills such as coordinatingcomplex and heterogeneous types of tasks or making proper adjustments in the workplace as unexpectedchanges or disruptions occurred. “Communication skills”, which go well beyond just language skills, andin fact seemed more related to skilled handling of “interpersonal issues”, were also frequently mentioned
as an important part of such soft skills. Intangible skills like these cannot be usefully built and replicatedthrough training courses or manuals because context matters, and also because such contexts continuously evolve. Workers learn such skills through experience , and this is a time-consuming and costly
process (Goto and Endo, 2014).
Therefore, one of the most important objectives for Panasonic (as well as the many other MNEs thatparticipated in the interview process) in managing its human resources is to attract and retain workers
in order to establish relationships that are stable and long-term, with a view to building and accumulating capacity for such intangible skills within its own workforce. One of the ways to achieve this could
probably be done through offering higher wage levels. However, rather than emphasizing financial incentives, they explicitly focused on improving opportunities to achieve a better work-life balance, taking
into consideration the issues that were deemed important from the perspective of the workers. The key
to this was to hold regular dialogue between management and workers, and to genuinely commit to theoutcomes of such dialogue. The contents of these dialogues are much more wide-ranging and detailed
than those of typical collective bargaining negotiations, which tend to rotate around issues such as salaryand other conditions and benefits of employment. For example, one of the notable issues discussed at
Panasonic was related to the plant’s long-term work plans, which are normally decided almost unilaterally by the management and then communicated and implemented in a top-down fashion. Rather,

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BOX 3 – Quality of lunch: Not trivial, but essential!
People’s attachment to their work can come from multiple sources, such as wage levels, working
hours, contractual terms, and the attractiveness of the work itself. Workplace environments, suchas clean and comfortable workspaces, good personal relationships with other co-workers, andproximity to workers’ homes can be important as well. However, what is almost never explicitly
pointed out in academic literature or in policy documents is the intriguing fact that all of the
managers interviewed at both MNEs and Vietnamese enterprises considered the quality of lunch
offered in canteens at the workplace to be very important, if not the most important.
When interview questions touched on welfare system issues, particularly on workplace canteens,
one could almost always expect to hear an anecdote of an unexpected discovery: that a significant number of workers were quitting their job because of the bad lunches served in the canteen.
“As a matter of fact,” the interviewee would say, “the quality of the lunch provided in our canteens sometimes seems as if it was the most important reason for the workers to stay here andwork for us, and therefore we take this issue very seriously.” As trivial as it may sound, the truth
seems to be that it is definitely not.
The quality of lunch is determined by the food vendors in the canteens and by the variation of
choice. One electronics MNE delegated the responsibility of managing the canteen to a dedicated committee consisting of representatives of the workers. This committee would select two
food vendors to operate in the canteen on the factory premises, and they would negotiate theprice and variations of the menu with these vendors. This committee intentionally appointed twovendors to create a “competitive environment” in the canteen by giving the workers the choice tochoose between the different menus provided by these vendors. The performance of these vendors, and ultimately their contracts to continue supplying food at the canteen, was dependent on
how many lunch orders they were able to attract. In addition, the committee would also regularly
monitor the contents of the lunch in order to maintain the quality of food at a certain level.
As most of the factories of these MNEs are located in industrial areas where restaurants andother food venues are not easily accessible, workers must depend on canteens. After a longmorning of work, a good lunch is vital to refresh and to prepare for the work in the afternoon.
This seems particularly important for workers who are from remote areas and live away fromtheir families. As they typically want to maximize the amount of money they can remit to theirfamilies, it is common for them to save on breakfast and to depend on the lunches in thecanteens. In most cases, lunches in the canteens are subsidized by the enterprise, and renewed
focus on how to manage them should be among the key corporate strategies, particularly for
those who wish to operate in Viet Nam.

Panasonic’s work plans seem to be created through a through a characteristically more bottom-up
process, in which one of the key items discussed was the timing and length of the company’s official Tet
holiday (the Vietnamese lunar new year). Tet is probably the single most important holiday in Viet Nam,and regarded as very important by the Vietnamese. As a result of such dialogues, Panasonic decided to
grant nine days of paid leave for the Tet holiday in 2015, which was much longer than the average fivedays in most of the other similar electronics MNEs. While that long Tet holiday certainly did increase
worker welfare, what was appreciated most by the workers and employers was the process that led to theagreement to that work plan, and the resulting commitment to it from both the workers and employers.
A work plan that was created through dialogue probably provides a stronger sense of ownership to both
employers and workers – and that seems to be the basis of such a commitment. A work plan to which

41

everyone is committed eliminates a significant amount of uncertainty, which again benefits both workers
and employers. The case of Panasonic is therefore a clear example of a win-win solution, which is also ade facto socially responsible business strategy.

6.3 Successful inclusion of local enterprises in regionaland global value chains: The case of 4P Company Ltd
4P Company Ltd. is a Vietnamese electronics enterprise that was established in 2001. It is headquarteredin Hanoi, and operates two production facilities in Hung Yen and Hai Phong. It currently employs
about 700 workers, where about 83 % are line operators, 5 % are engineers, and the remaining 12 %are indirect staff, including management. Interestingly, only about 56 % of its line operators are female
workers, which seems to correspond to the general tendency of local (Vietnamese) enterprises having
higher proportions of male workers in their production lines compared to MNEs, as mentioned earlier.
The company mainly produces Printed Circuit Boards (PCBs) for electronic products, including mobile
devices and automobile parts. It also currently produces OEM products such as TV sets. Its product line
has been expanding rapidly with continuous upgrading in process technology, such as the recent introduction of the Surface-mount Technology (SMT) in the production of PCBs. In the process of intro­
ducing this new technology, technological transfer and support from a Japanese electronics MNE havebeen crucial. The introduction of such advanced technology typically happens through regular consultations and dialogue with their buyer MNEs, where such practices provide mutually beneficial solutions.
As discussed in the earlier part of this report, one of the key characteristics of Viet Nam’s electronics
sector is the extremely limited backward and forward linkages between MNEs that coordinate global
electronics value chains and the locally owned enterprises. The main bottleneck stems from the lack ofappropriate capability on the side of local Vietnamese enterprises, which entails concrete technological aswell as much broader managerial issues, often referred to as soft skills or “mind sets.” As such, from groupinterviews with local electronics enterprises, this company stood out in terms of its successful integration into export-oriented global electronics value chains. The company’s customer base includes several
electronics MNEs, in which particularly strong relationships have been established with major Korean
and Japanese electronics MNEs. This is an interesting case, as the enhanced management practices ofthese MNEs have a direct bearing on those of 4P Company Ltd., helping them to successfully integrate
into the international electronics production network.
The current president of 4P Company Ltd. used to work as a deputy general director for a major Korean
electronics MNE, and the enterprise was set up as a spin-off to undertake subcontract work for that
Korean MNE. It still operates exclusive production lines for the Korean MNE, in which the MNE
despatches its own technical staff to supervise the overall production process. This close inter-firm
relation­ship has been an important channel of technological transfer in terms of process technology andoverall operational systems, as well as of the skills necessary to effectively manage them. The Japanese
MNE later started sourcing from this company as well, and supported the introduction of advanced
process technologies, allowing the company to dynamically catch up with global innovation technicalfrontiers.
While we were not able to identify other local enterprises that were successful in integrating into global
electronics value chains, we collected some cases in which electronics MNEs sourced parts other thanpackaging materials, such as metal moulds for electronic parts. One of the challenges faced by local
enterprises is the lack of financial resources to invest in advanced technologies, which tend to be capital intensive. But what underlies those challenges is the uncertainty related to future demand for their

42

products from buyer MNEs. Unless local suppliers can foresee a reasonably stable stream of orders fromtheir buyers, the risks to invest will become prohibitive. This is of course a risk that is inherent for any
business, but if MNEs want to diversify and localize their procurement strategies out of concerns related
to costs and delivery time, then some commitment, as the case of 4P Company Ltd. shows, may be
dynamically pro-business while enhancing competitiveness.
While we recognize that the experience of 4P Company Ltd. may not be easily replicable by other local
enterprises, it nevertheless suggests one major way in which local enterprises can participate in thesegrowing global value chains. Nevertheless, challenges remain: one is the potential competition withforeign enterprises that currently supply the bulk of the parts and components to MNEs in Viet Nam.
The issue of the (perceived) inconsistency in FDI attraction and local enterprise development policies
may need to be addressed by the Government, which we will discuss in the next section.

6.4 Supporting better institutions and policy frameworks through partnerships
and dialogue: The case of the JBAVThe overall business environment of Viet Nam has improved drastically over the years as important socialand economic infrastructure, including ports, roads, power plants and access to key business services,
has been built and established. However, several important challenges still remain. These include thecapabilities to craft and implement consistent and conducive policies, and the upgrading of the country’s
education systems to facilitate national skill accumulation.
Addressing these challenges is primarily the Government’s responsibility; however, MNEs can play major
supporting roles. This section will take up the case of the JBAV. How foreign business organizations canadvance their own member enterprises’ positions by promoting the creation of better business environments through dialogue with other stakeholders, including the Government, will be discussed. JBAV isa volunteer, membership-based association of Japanese businesses, which is officially licenced to operateby the Vietnamese Government. Its membership currently includes more than 600 enterprises operating
in northern Viet Nam.17
Canon was one of the earliest MNEs to establish manufacturing operations in the electronics sector
through FDI in Viet Nam, strongly influencing other electronics MNEs to follow suit. Canon operates
three manufacturing plants in Hanoi and in Bac Ninh province, and employs a total of about 20,000
workers. It produces low and mid-range printers in these plants, and Viet Nam is Canon’s largest production site for printers in this market category. Canon currently chairs a working committee within theassociation with 13 members from other enterprises – which do not necessarily operate in the electronics
sector – and focuses on issues pertinent to labour and employment.
One of the key issues that affects the operation of MNEs (and practically all other enterprises) is theVietnamese Labour Code, which came into effect in 2013. As mentioned earlier, quite significant changes
had been made with respect to specific provisions on the different types of labour contracts. Anotherchange was the introduction of temporary work schemes, which are also referred to as “labour outsourcing.” The new Labour Code also introduced a fairly controversial set of provisions that regulate overtime
work. In principle, workers may only work a maximum of 30 additional hours per month, and 200
additional hours per year (300 hours in special circumstances).

17 There is another major association of Japanese businesses in Ho Chi Minh City, the JBAH, which counts close to 800 member enterprises.
The JBAH is formally part of JBAV and works closely with the latter, but is managed independently.

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It is worth noting that practically all the participating MNEs and Vietnamese enterprises found thisregulation too restrictive, and most also found that it was not beneficial to either employers or workers.
Workers at the MNEs typically included people who were living in the vicinity. Those who were originally from remote areas lived in dormitories provided by the MNEs or in nearby apartments, typicallyliving together with other co-workers. While workers of the former group tended to commute from theirhomes, the latter lived away from their families. In general, workers from remote areas tended to prefer
to work longer overtime hours as this would enable them to send more money back to their families. Inline with this, quite a few managers at these MNEs and Vietnamese electronics enterprises mentionedthat there actually was strong demand from such workers to increase their overtime work. Some MNEs
also mentioned that restricting overtime work too much would have negative effects on their ability tobuild the skills of their workforce. As the current law does not allow for flexibility in this, they see this as
one bottleneck to upgrading their operational efficiency.
Regulating overtime is without a doubt important; there is ample evidence around the globe that correlates poor working conditions with excessive overtime work. Labour inspections to ensure complianceare thus crucial for any country. The controversy over this overtime regulation does not pertain to whether
it is needed or not, but to whether the particular amount of hours stipulated in the Code are adequate ornot, and more importantly, whether such rules had been reached through inclusive social dialogue. Mostof the MNEs and Vietnamese enterprises that participated in the interviews felt that such regulations
had been decided unilaterally without adequate consultations and thus did not reflect their interests nor
those of the workers. While we do not attempt to take any position on the number of overtime work
hours allowed, we do see great potential to improve regulations through the re-engagement in nationallevel social dialogue. Such dialogue should be far reaching, including not just the traditional national
tripartite stakeholders of government, employers, and workers, but also appropriate MNE representation.
In addition, quite a few MNEs also mentioned that it is quite common to see inconsistent interpretation
and application, as well as arbitrary changes by the government of some Labour Code provisions. Inspections seem to be conducted unsystematically as well. These present all enterprises, including MNEs andlocal enterprises, with considerable uncertainty, which is highly unconducive to any corporate activity,and seriously undermines their profitability and, therefore, their sustainability. Needless to say, this has
detrimental effects on workers and the broader labour market as well.
On the issue of skills, the capabilities of workers have direct implications on operational efficiencies,
and therefore on corporate viability. The fact that a serious gap exists between the skills workers possess
and those that are required in the labour market, particularly by the MNEs, has long been a topic ofdiscussion and is regarded as a cross-sectoral issue in Viet Nam. The above-mentioned case of Panasonicprovides a good example of how good dialogue mechanisms can provide trust- and commitment-based
worker-employer relationships – a foundation upon which key intangible skills can be built over timethrough core business strategies. While such internal strategies can be very effective at the level of eachindividual enterprise, complementing such efforts with solid technical and vocational training offeredby external institutions could prove to be highly effective in providing a stronger and more sophisticatedsupply base of skilled workers.
Institutions that provide education and training in skills are central to national innovation systems,
and these are normally developed by strategic government policies. In Viet Nam, such institutions are
significantly underdeveloped. The education/training that takes place at these institutions are perceived
as mostly irrelevant, as the curricula focus too heavily on theoretical dimensions that are often outdated
and have little practical value.

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The problem is that most governments tend to have no clear idea of what particular skills are required byenterprises, as those skills typically evolve from competitive market dynamics. MNEs can therefore contribute by providing this information to support the development of effective curricula for the purpose ofbuilding skills. MNEs with strong employment impact and commitment to the local economy, such as
Canon, in cooperation with a highly influential association such as JBAV, can provide a significant boost
to relevant government initiatives by providing the needed inputs through dialogue.

7
Challenges, opportunities, andrecommendations for future action
The electronics industry is now the largest export sector of Viet Nam. It has evolved out of globalized
transnational production and distribution networks, and MNEs have played a major role in this. It is
now fully integrated, and has positioned Viet Nam as one of the key players in the global electronics
supply base. While the Vietnamese electronics sector is still primarily characterized by labour-intensive
processes, this has had positive effects in generating local employment, particularly in and around urban
areas.
These all provide solid opportunities for the country to further advance towards its socioeconomic
develop­ment goals. However, they are to some extent dependent on the associated challenges being
properly addressed. This final section attempts to summarize them as they have been identified throughthe interviews and analysed in this report. The focus is on the challenges for sustainable employment
creation through the promotion of socially responsible employment practices.

7.1 Stakeholders, challenges, and opportunities
For MNEs the challenge is to continuously upgrade in an increasingly competitive environment bypushing their efficiency frontiers outward through innovation, and redefine their core competence areas
according to changes in market conditions. As CSR has become an integral part of such corporate
strategies, MNEs must now think of new strategies to at least ensure regulatory compliance down the
supply chains they coordinate. This report has argued that socially responsible labour and businesspractices can also be highly efficiency enhancing, and has presented model cases in which competitiveness strategies and socially responsible practices were perfectly aligned. These model practices suggest that
there are ample opportunities for such de facto responsible strategies.
There still are bottlenecks, which are mostly related to the lack of capacity in institutional and policy
dimensions. First, there is a serious shortage of skilled workers. The prevailing opinion is that under­
developed educational and training institutions are to be blamed for that shortage. Second, the regulatoryenvironment is often inconsistent, with frequent and arbitrary changes, at least in the views of those
MNEs that participated in the interview process. This makes long-term strategic planning difficult for
all enterprises, and negatively impacts corporate viability. Third, local supporting industries are highly
underdeveloped, with significant capacity gaps between what is required by the MNEs and what local
enterprises can supply. These bottlenecks generally affect workers in similar ways, and are challenges for
the Government to address.
The biggest challenge for workers is primarily that they are restricted in terms of opportunities to fully
maximize their potential. Local educational and training institutions in Viet Nam are underdevelopedand still ineffective when it comes to building the necessary skills required in a rapidly changing andincreasingly globalized labour market. The electronics sector is booming, meaning that, in principle, the46demand for labour is growing much faster than supply; and yet most of the jobs available in this sector
remain limited to assembly functions with few requirements in terms of skill. While strong demand does
exist for higher-skill-intensive jobs in this sector (and in other sectors), workers are effectively excluded
from this segment of the labour market because of their initial lack in adequate skills and knowledge.
The challenges will become especially acute when wage levels reach the point where an economy-wide
structural adjustment – characterized by a shift towards higher knowledge and skill-intensive functions –becomes necessary. Without effective national education and training systems in place, such transformation will prove difficult for the workers, leaving them trapped in lower functional areas. This problem
is often referred to as the middle-income trap, and will become a major challenge for workers. It willprobably also become even more crucial for enterprises and the Government (Goto and Endo, 2014).
The local economy, particularly local Vietnamese electronics enterprises, are another important industry
stakeholder. The development of local enterprises is also important for the Government, as this will
promote the establishment of advanced technology in its local economy, thereby supporting local innovation, and further facilitating local economic development. As described earlier in the sectoral overview
of this report, the industry is expanding rapidly in terms of the number of enterprises and in the numberof workers. However, there seem to be several challenges ahead to realize self-enforcing, sustainable andpositive local-based development.
The first challenge concerns inconsistent policies that can negatively affect specific groups in the sector.
As mentioned earlier, a few of the managers of the local enterprises that participated in the interview
process felt that the recent rapid boom in the export-oriented sector had crowded them out, particularly
from local labour markets, making it very difficult to recruit and retain the workers. The perception isthat preferential government policies to attract FDI have discriminatory effects on the local industry, andthat the inconsistencies in local industrial development and FDI attraction may suggest a need for better
policy coordination.
Another challenge is the fact that linkages between MNEs and these local enterprises remain very limited
in terms of supplier-buyer and outsourcing relationships. Backward and forward linkages are typicallythe key channels through which technological transfer would occur. This report views such channels as
among the most important factors in building the capacity of local enterprises to reorient their businessstrategies towards socially responsible practices.
As the model cases suggest, close and stable relationships between local enterprises and MNEs have been
critical. While the local contents ratio in the Vietnamese electronics sector is low compared to othermajor electronics exporting countries, MNEs still do procure some of their inputs from local suppliers.
The problem, however, is that such local suppliers tend to be FDI enterprises (which can sometimes also
be large MNEs), and the actual relationships with local Vietnamese enterprises are minimal, as describedearlier. While this is certainly a big challenge for those Vietnamese local enterprises, it is also perceived asa big challenge for MNEs as this restricts their procurement options and limits their flexibility in supply
chain configuration. The development of supporting industries and raising local industry capacity has fora long time been seen as a major challenge for full-fledged and genuine local-based industrial develop­
ment, and this issue has major implications on the type of growth in Viet Nam. What is important froma labour perspective is that stronger linkages between local Vietnamese enterprises and MNEs may havea stronger impact on local employment creation, which is conducive to sustainable and inclusive growth,in particular if the technologies transferred to those local enterprises spill over into other sectors.

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7.2 Recommendations
Based on the discussions, this section suggests recommendations on how key actors may promote socially
responsible labour and business practices. It should be noted that these practices, first and foremost, areprobably useful as entry points for discussion among the stakeholders of the electronics sector in Viet
Nam. Action plans should be tailored according to the national institutional setup, and implemented
accordingly.

7.2.1 Promote dialogue within and between enterprises, and in tripartite-plus structures
As practically all the model cases suggest, dialogue is key to promoting socially responsible businessand labour practices. These cases suggest that dialogue should be promoted at three levels (1) dialogue
between workers and employers (intra-firm dialogue); (2) dialogue between enterprises through interfirm relationships (inter-firm dialogue); and (3) dialogue within an extended tripartite-plus structure.
Intra-firm dialogue is specifically related to employer-worker relationships. Interviews conducted in Viet
Nam suggest that dialogue in this context is highly institutionalized in terms of the unionization of workers. For example, all MNEs had unions at their workplace, which was apparently required by law, and
100 % of the Vietnamese workers were members. This is very unique as typically union members do notinclude managerial staff. Similarly, most of the participating Vietnamese enterprises also had unions on
the same terms. It seemed these unions were not necessarily positioned or seen as platforms for workers
to engage in collective bargaining with the management, which is more typical in most other countries.
While such institutionalized unions at workplaces can nevertheless play an important role in building
productive worker-employer relationships, dialogue through regular business channels at workplaces
may also be highly effective. The point is that such dialogue can be incorporated into daily management
strategies, and that they can be easily replicated by other enterprises.
The goal of inter-firm dialogue is to foster trust-based, committed, stable and long-term inter-firm
relation­ships. The practice of Fuji Xerox of helping to build the capacity of its suppliers in socially
responsible labour and business practices is a case in point. One of the important implications revealedby this particular case is that Fuji Xerox recognizes that one of their main sources of competitiveness isdirectly related to the collective efficiency levels of its own supply chain, which cannot be built without
effective dialogue between it and its suppliers.
This case has positively shown that while such commitment can be initially costly for MNEs, it will eventually result in a win-win situation for both the MNE and local enterprises. Nevertheless, the point that
initial search costs for such potential suppliers tend to be high, particularly where supporting industries
are underdeveloped, remains true. Asymmetric information regarding corporate performance among
potential suppliers and buyers is high, and this can be mitigated by better circulation of relevant information. The Government and business associations can play important roles in this.
Tripartite-plus refers to the inclusion of non-traditional actors as defined by the ILO’s national tripartite structure, namely, representatives of workers, employers and the Government. Representatives from
MNEs, whose position in the existing national tripartite framework is currently ambiguous, should
be incorporated. As the model cases suggest, MNEs have an important role to play, particularly inmaximizing job creation. In addition to MNEs operating in Viet Nam, the active involvement of the
MNE headquarters in their home countries is also crucial. This is particularly true when production
is organized through arms-length relationships in which the MNEs do not actually produce anything,but instead outsources functions to other MNEs operating in Viet Nam, as in the case of Apple. As
discussed, Apple’s active engagement with its suppliers (Foster Da Nang) had significantly positive effects
on local working conditions and supplier competitiveness. Engaging such key players that primarily

48

operate from headquarters will therefore become increasingly important. The inclusion of MNE headquarters in dialogue can also be effective leverage to raise awareness in MNE home countries. In thatsense, it will also be important to further consider the roles of those home country governments and how
they can be involved in this extended structure. Furthermore, the issue of coordination between FDI
attraction and local economic development can also be discussed much more effectively within such an
extended structure.
Challenges and opportunities can be different among the stakeholders because of the variation ininterests and perspectives, which are also dependent on their positions and on how their motivations
are shaped. However, it should be remembered that responsibility to comply with regulations, and now
increasingly beyond that, rests with all involved. Compliance is therefore not only the responsibility of
MNEs, but also that of local Vietnamese enterprises as well as governments. Aligning the interest towards
socially responsible business and labour practices of these stakeholders’ interest is key, and this can only
be achieved by institutionalizing and promoting regulatory compliance through joint commitment withall stakeholders through such three-dimensional dialogue.

7.2.2 Develop capacity of educational and training institutions
Almost all of the participating MNE representatives noted the shortage of skills available in the local
labour market in Viet Nam, and it has almost become a norm for those electronics MNEs to train theirworkers in-house. The lack of quality and relevant vocational and technical institutions is widely held
responsible for this.
It may be interesting to note that while the electronics sector is often seen as very technology intensive
and advanced in terms of the production processes, the actual assembly work in the production lines
requires little technical knowledge or experience. Most of the work in these tasks is aided by highly
specialized and precise machines, making the work of assembly operators very simple and repetitive. Thisis reflective of the characteristics of the products produced. Because electronic products require precisionin the assembly process, variation due to manual work is minimized to the extent possible. Accordingly,
most MNEs typically consider two or three weeks’ training for their new recruits to be enough to build
the basic skills necessary to undertake a particular work component in the production line. That seems to
be much shorter than similar trainings in other labour-intensive industries, such as the garment sector.18
However, this does not mean that education and training are irrelevant. On the contrary, the ability ofworkers to think logically and lead conclusions is something that is perceived, at least by most MNEs,
as lacking in Viet Nam, and education and training institutions can help to build such capabilities,
provided that the correct curricula and able instructors are in place. Such ability will become very helpful
later when further intangible skills become important – as introduced through the case of Panasonic – inparticular once the workers with such capacity progress to middle-level managers or leaders in operationlines.
The key issues in relation to this are: (1) only those involved in the sector (MNEs) know what particularskill sets are required for workers; and (2) these skill sets continuously evolve dynamically out of changing contexts, underpinned by technological and demand changes. As such, engagement with MNEs will
become crucial if Viet Nam wants to upgrade and establish vocational and technical institutions that arecompatible with the trends in globalization.

18 As there are numerous work components in a production line, workers must of course continuously work to acquire the necessary skills forthe different components. However, the variation of these work components seems to be based mainly on the variations in the combinationsof basic skills that can be acquired in the initial training period.

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7.2.3 Strengthen institutional capabilities and promote interministerial policy coordination
While no concrete non-compliance case came up through our field work, interviews with workers’organizations nevertheless suggest that concerns related to non-compliance in the electronics sector canbecome an issue, unless effective enforcement, monitoring, and inspection systems are in place. Amongsuch potential concerns, as often mentioned in these meetings, was the issue of overtime work. While
overtime can be an important source of additional income for those who want to work more, it could
also harm workers’ welfare significantly if they are forced to overwork. Labour inspections play a crucialrole in enforcing labour codes and overcoming potential decent work deficits. However, the current
situation is that Viet Nam still lacks the necessary human resources to effectively enforce compliance.19
There seems to be the potential for inconsistencies between key policies that affect the performance of
MNEs, local Vietnamese enterprises, and the workers involved. The example cited earlier on the relationship of FDI promotion and local enterprise development policies is an example. If this is the case, betterinterministerial policy coordination between relevant ministries, including the MPI, MOIT, and the
MOLISA may be needed. This will become particularly important when the Trans-Pacific Partnership(TPP) Agreement, which was signed by its 12 member countries, including Viet Nam in February of
2016, comes into effect after being ratified by all its members. The TPP is a unique trade agreement, as
it covers unprecedented areas with a view to “deep integration.” One such area pertains to labour-related
provisions, which are based on the ILO’s Declaration on Fundamental Principles and Rights at Work.
In that event, a much improved and closer coordination, especially between MOLISA and MOIT, will
become critical.
The lack of interministerial policy coordination is often cited as a problem in Viet Nam.This is also
depicted as a capacity issue. For example, Ohno (2009) discusses Viet Nam in relation to the middleincome trap, and suggests that this is a result of a lack of Government capacity to effectively implement
strategic and coherent policies. Capacity-building, particularly that of MOLISA, to more effectively
implement thorough inspection schemes as well as to better coordinate policies may be highly useful.
In light of this, this recommendation overlaps significantly with that of strengthening dialogue. Interministerial coordination is primarily a public administration issue. As articulated in the Viet Nam
Sustainable Development Strategy for 2011-2020 (Decision No. 432/QD-TTg),20 which is the result of
the eleventh congress of the Communist Party of Viet Nam and the main policy framework describing
its overall development strategy, administrative reform is a primary area of focus with regard to achieving
the country’s broader development goals. Such reform, if implemented with significant political commitment, could greatly contribute to mitigating issues of policy consistency and coherence, and provide
the foundation for sustainable and inclusive growth through socially responsible labour and businesspractices.

19 Interviews with several labour inspectors suggest that because electronics enterprises generally tend to have better working conditions thanother labour-intensive manufacturing or service sectors, they are rarely inspected.
20 Details of this national development strategy are available at the Government of Viet Nam Portal (http://www.chinhphu.vn/portal/page/
portal/English/strategies/strategiesdetails?categoryId=30&articleId=10050825). Accessed on December 4, 2015.

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Annex 1:
A note on methodological issues
The identification of focus areas, and the subsequent data collection strategies and related methodologicalissues employed in this report are a result of a consultative process with key stakeholders in the electronics
industry in Viet Nam, which was presented and discussed during the project launching ceremony “Moreand Better Jobs through Socially Responsible Labour Practices in Viet Nam,” held on 9 October 2015
in Hanoi (See Annex II for details). A desk review was prepared as a base for discussion, the outline ofwhich was proposed as found below.

A1-1 Key issues proposed for further researchThis research uses the ILO’s MNE Declaration as the main framework of reference. The MNE Declaration contains five areas of recommendations: general policies; employment; training; conditions of workand life; and industrial relations.21
Firms in the electronics industry are connected to production networks through complex inter-firm
relationships and governance structures with asymmetrical power relationships. The domestic electronics
sector in Viet Nam is also highly heterogeneous in terms of enterprise characteristics, with wide variationin product groups, market orientation, and chain positions (and therefore bargaining power). As working conditions in such a dynamic setting are strongly affected by these enterprises’ attributes and the job
types within these particular positions, focus should be placed on issues that will be useful to understand/highlight practical leverage points. This would: (1) improve enterprise positions within the production
networks; (2) regulate the competitive (market) conditions of the functional areas in which they specialize;(3a) promote win-win solutions for lead and local enterprises in the production networks; and (3b) promote
win-win solutions for employers and workers in their respective companies. In addition, (4) macro-levelconsiderations will also become relevant as they underlie the economic and social context in which thesector operates. While this report discusses these issues separately, it should be noted that these are in fact
all closely interlinked.

21 The recommendations for the Government and MNEs for each of the areas are roughly as follows: (1) general policies: respect the sovereign
rights of States, obey the national laws and regulations, give due consideration to local practices and respect relevant international standards(MNE declaration, pg. 3, paragraph 8); (2) employment: promoting employment with equality of opportunity and treatment, and security;(3) training: develop national policies for vocational training and guidance, closely linked with employment; (4) conditions of workand life: wage, benefits, hours of work, minimum age, safety and health; and (5industrial relations: freedom of association and the right toorganize, collective bargaining, consultation, examination of grievances, settlement of industrial disputes. For details, please see the Tripartite
Declaration of Principles concerning Multinational Enterprises and Social Policy, which can be downloaded fromhttp://www.ilo.org/wcmsp5/groups/public/---ed_emp/---emp_ent/---multi/documents/publication/wcms_094386.pdf.

53

A1-2 Improving enterprise positions in the production networks –the current situation
The particular types of upgrading that local companies can realize has a direct impact on enterprise
performance since dynamic competitiveness, almost by definition, depends on the enterprise’s ability
to achieve this at its respective value chain positions. Upgrading and improving working conditions arehighly complementary, particularly when real wages are increasing and the labour supply is contracting
relative to demand.
The different types of upgrading have different implications on long-term enterprise development.
For local enterprises at the initial stages of network participation, the most realistic type of upgrading
trajectory lies in processes, where advanced technology and knowledge often flows down throughproduction networks from foreign enterprises. For example, it is quite common for production networks
coordinated by Japanese lead enterprises to dispatch their own technical personnel to local first-tiersuppliers in order to directly transfer technology and skills at the shop-floor level.
In this sense, one issue that needs to be clarified is the type of technology transferred (level of skill
contents, representative worker profiles of the recipients of technological transfer), and whether that has
affected their chain positions. The following is a list of potential concrete issues that could be looked into: Types of functions on which local enterprises focus, and worker profiles in these functions; Types of technological support they receive from lead firms;
 The contractual characteristics of inter-firm relationships between local and lead enterprises; Types of upgrading that have/have not taken place at the enterprise level; Perceived bottlenecks by local and lead enterprises; The types of dialogue mechanisms between workers and managers at the enterprise level; Other.
The MNE Declaration principles become important as guidelines, in particular its recommendations in
the areas of training and employment, as employment promotion hinges almost directly on the productivity and efficiency levels of management as a whole, as well as on individual workers, which in turn isdependent on how much technological transfer and skill training is transmitted through their networks
and by vocational training institutions. Likewise, employment promotion is also important to soundand sustainable industrial relations, which provides the building block to the promotion of decent work.

A1-3 Regulating competitive conditions through effective institutional design
and implementation
Regulatory environments play a major role in determining working conditions. For example, some reportssuggest that working conditions have been increasingly downgraded, particularly at the lower tiers of the
production networks. That downgrading includes violations related to minimum wages, working hours,
and minimum working age requirements. Enterprises tend to resort to such “race to the bottom” strategies when they fail to achieve genuine upgrading and have no alternative option other than to cut costs,
especially wages. Labour inspection mechanisms become key instruments to prevent such strategies frombeing undertaken by enterprises.
The industry, MNEs and local enterprises in the electronics industry are subject to a number of publicly
enforceable institutional rules as well as private codes of conduct. While this research uses the MNE
Declaration as its key reference point, other relevant CSR-related initiatives (such as the United Nations
Global Compact and EICC Code of Conduct) may also impact enterprise behaviour. The question

54

is, how do each of these different (but overlapping) instruments and initiatives come into play in thenational policy and regulatory frameworks? How do these affect enterprise behaviour? How do they playout in terms of industrial relations, local labour markets, and ultimately on working conditions?
Private codes of conduct have also proliferated in the last few decades worldwide. Lead enterprises
coordinating the production networks also increasingly affect suppliers by demanding better working
conditions through their own codes of conduct. Suppliers are progressively pressured to accommodate
these conditions, and their ability to respond to these demands has, to a certain extent, become dependent on their successful network participation and subsequent economic upgrading.
That being the case, concrete issues for consideration include the following: Efficacy of national regulatory frameworks;
 Effectiveness of enforcement mechanisms;
 Effectiveness of relevant instruments and initiatives, including the MNE Declaration, OECD
Guidelines for Multinational Enterprises, United Nations Global Compact, United Nations Guiding
Principles on Business and Human Rights, ISO 26000;
 Effectiveness of private instruments such as the EICC Code of Conduct; Other.

A1-4 Promoting win-win solutions in inter-firm and intra-firm(employer-worker) relationships
Dialogue promotes responsible practices, and trust-based, long-term and stable relationships are key inboth inter- and intra-firm relationships.
Garment industry studies, for instance, have shown that Japanese lead firms tend to favour longer-term
relationships with local enterprises. The firms commit to costly context-specific investments, and therefore have a strong incentive to capture over a long time-horizon. In many cases, this has promoted theactive transfer of technology, particularly in the area of process- and product-based upgrading and innovation (Goto et al., 2011). This could be an important aspect in the Japanese-oriented electronics value
chain in Viet Nam as well.
The issue of intra-firm relationships bears direct relevance on employment and human resource management practices. Employment contracts, the functional positions that have significant effects on working
conditions, as well as skill upgrading potentials should be considered. As these issues are highly context
specific, wide-ranging information and data collection will become critical.
The proposed issues in these areas are as follows: Typology (mapping) of inter- and intra-firm relationship practices according to chain positions, market
orientation, and job categories; The question of why some relationships have achieved better trust-building outcomes at the inter- andintra-firm levels; Documentation of actual cases at the institutional and enterprise levels where trust and stable relationships have been promoted;
 Other.

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A1-5 Macro-level considerations
How the viability of enterprises, through upgrading, unfolds in terms of working conditions, is also
influenced (and sometimes practically determined) by the structure and conditions of the labour markets,
which evolve within particular macroeconomic and social contexts. For example, in terms of wage levels,
Palpacuer and Parisotto (2003) even suggest that local labour market conditions and regulations can havea stronger effect than firm-level strategies.
How competitive pressures and enterprise-level upgrading performance translate into working conditions is also dependent on workers’ job characteristics, especially in terms of skill content. Worker profiles
may also affect working conditions, particularly when labour markets are segmented according to race,
gender or other personal/social attributes (Goto, 2011). National education/training systems, including
vocational training and skills development programmes, become important.
Concrete issues for consideration in that regard may include the following: Information on the specific labour markets in which their enterprises operate; Worker profiles; Education and vocational training schemes; Other.

A1-6 Methodology and Questions
As there is considerable heterogeneity among enterprises in the electronics sector, working conditions
could differ significantly according to product category, market orientation, type of enterprise, and how
these companies are positioned in their respective value chains. Therefore, to correctly and meaningfully
highlight and understand the issues outlined, a mapping exercise of the sector – focusing on the MNEs
while including local suppliers to the extent possible – would be necessary. That could be used to attempt
to categorize the enterprises according to their position in the production and distribution network.
Second, data and information collection through interviews with the representatives of selected enterprises should be conducted.
Interviews could be conducted with semi-structured questionnaires, the main purposes of which are to: Collect information with respect to the issues outlined in the previous section. That information will
be used to conduct a mapping exercise of: (1) the various inter- and intra-firm typologies according
to different product, market-orientation, and enterprise attributes; (2) challenges and constraints fordecent work amidst existing labour market conditions, institutional frameworks and policies, andactual enterprise-level practices; and Collect information to construct detailed narratives of effective socially responsible labour practices.
The proposed data collection strategy, accordingly, will be as follows.
Institutional level: Face-to-face, individual interviews with representatives of relevant government
branches, industry associations, workers’ associations, technical and vocational institutes.
Enterprise level: Face-to-face interviews with first-tier suppliers (both foreign and domestic), andsecond-tier suppliers, possibly with persons in managerial positions. A semi-structured questionnaire will
be used.
Worker level: Focus-group interviews (discussions) with workers. A potential concern is that this may
prove difficult because company representatives tend to be reluctant to grant interviews, especially if theresearch deals with issues related to labour relations, wages or working conditions (Vind, 2008).

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Notes

The Multinational Enterprises and Enterprise Engagement Unit (MULTI) conducts studiesto support the application of the recommendations of the Tripartite Declaration of Principles
concerning Multinational Enterprises and Social Policy (MNE Declaration). The studies serve to
inform tripartite plus dialogues on decent work priorities – involving government, social partners,
multinational enterprises, and other relevant actors – in order to foster a partnership approach
among all actors that supports national development and decent work priorities and encourages
sustainable business practices.

Multinational Enterprises and Enterprise Engagement Unit (MULTI)
www.ilo.org/multi
multi@ilo.org
ILO Helpdesk for Business on International Labour Standards
www.ilo.org/business