The Transformation of Human Resource Management and Industrial Relations in Vietnam

Anne Vo

• Publisher: Chandos Publishing
• Year: 2009
• Print ISBN: 9781843342700
• eBook ISBN: 9781780632544
• Topic: Business
• Subtopic: Business General
• Index: Business

This essential reference reviews recruitment and selection, training and development, performance management and union relations in a sample of multi national companies (MNCs) and local firms in Vietnam. It addresses the transfer of human resources management (HRM) systems across borders and the transformation of HRM practices in Vietnam in the context of a developing and transitional economy. The book extensively examines the attraction of younger generations to HRM systems in developing countries, the 'brain drain' phenomenon and the local firms potentially losing commercial competitiveness in their own country. The book also reviews the catalyst role of MCNs in the management of human resources.- Covers HRM in Vietnam – an area barely covered in other books- Covers two of the most important types of enterprises in Vietnam: multinational companies and state-owned enterprises- Contributes to knowledge in a number of key areas including globalisation, social transformation, and diffusion of best practice by multinational corporations

1

Introduction

Publisher Summary

This chapter provides an overview of the book, The Transformation of Human Resource Management and Industrial Relations in Vietnam. The book broadly examines the transformation of the HRM/IR system in Vietnam. In particular, it investigates the rapidly changing HR practices in two different types of large Vietnamese enterprises—namely, State-Owned Enterprises (SOEs) and Multinational Companies (MNCs), and to develop an explanation of why their Human Resources Management (HRM) practices have developed along their paths. It also seeks to analyze the way in which the management of human resource has changed in SOEs and to record the ways in which these enterprises have developed their HR systems. It also studies the transfer of HR policies and practices and the formation and development of these practices in MNCs’ subsidiaries in Vietnam. The book systematically identifies and compares the HRM practices being used in the two sectors since the 1990s—namely, Recruitment and Selection (R&S), Performance Management (PM), salary and other incomes, Training and Development (T&D), and labor relations.

1.1 Background

The Socialist Republic of Vietnam stretches over the length of the Indo-Chinese Peninsula, covering an area of approximately 330,000 sq. km. Bordered by China to the north, Laos to the northwest, Cambodia to the southwest, and the South China Sea to the east, Vietnam is positioned at a strategic and central location in South East Asia. The history of this small country is nothing short of heroic and remarkable, and is marked by a continuous struggle over centuries for independence and autonomy against its larger neighbour China. Despite this, it was only since the wars with France and the United States of America that Vietnam emerged onto the global arena. The conquest of Vietnam by France began in 1858, with Vietnam becoming a part of French Indochina in 1887. During World War II, Japan and France fought over Vietnam, with Japan finally expelling the French. After the war, France attempted to re-establish its colonial rule; however in 1954, the French were defeated by the communist guerrilla forces under Ho Chi Minh. The Geneva Accords left Vietnam divided into a communist north and an anti-communist south. At this point in time, America had replaced France as the primary sponsor of the anti-communist government. Tension between the North and the South mounted over the next few years, resulting in the eruption of a full-scale war in 1964. The war ended in 1975 with the withdrawal of American forces, and Vietnam was united under the communist government of the North.

After decades of wars and struggle, the nation committed itself to the development of a socialist economic system, which soon resulted in economic failure. During 1976–1980 (the Second Five-Year Plan), the growth rate of national income was only 0.5 per cent, instead of the targeted 13–14 per cent (Fforde & De Vylder, 1996: 167). In 1980, Vietnam’s gross domestic product (GDP) growth rate was 1.6 per cent (Statistical Yearbook, 1995). In the same year, food production reached only 69 per cent of its target, coal 52 per cent, electricity 72 per cent, sea fisheries 40 per cent, cotton fabric 39 per cent, paper 37 per cent and so forth (Vu, 1995: 19). By the mid-1980s, the Vietnamese economy was only barely sustained, thanks to significant assistance from the Eastern Bloc.

At the Sixth National Congress of the Communist Party in December 1986, the Vietnamese government introduced an intensive economic reform, known as Doi Moi, with the objective of redirecting the economic system from a centrally planned to a market-oriented one. There are two key points in the Vietnamese government’s reform agenda, namely the reform of the state sector and the adoption of an ‘open door policy’ in foreign economic relations. Prior to 1986, state sectors were the sole players in the economy. Fforde (1999) argues that Vietnamese economic reforms had to start by tackling the state sectors as the government could no longer subsidise them. In 1981, the government enacted Decision 25/CP¹ that provided guidelines and measures to increase the initiatives and financial autonomy of state-owned enterprises (SOEs) in business operations (Nguyen & Tran, 1997). This milestone enactment led the Vietnamese government to gradually introduce a series of guidelines and policies for reforming the structure and management of SOEs. These new regulations focused on some of the most important aspects of SOE management such as formulation of plans, purchase and sale of assets, profit-based accounting system, reduced budgetary support, investment of the enterprise’s own resources, acquisition and leasing of assets, and greater managerial flexibility in hiring and firing of employees, setting of wages, salaries, benefits, etc. (Nguyen & Tran, 1997; McCarty, 1993). More current steps of the reform process involved rationalisation through a combination of consolidation and liquidation of SOEs, reorganising SOEs, establishing general corporations and implementing the transformation of SOEs into joint-stock companies.

With Doi Moi, the Vietnamese government has sought industrialisation by embracing an ‘open door policy’ towards foreign investment, thus welcoming a new influx of newcomers to the economy in the form of multinational companies (MNCs). In December 1987, the National Assembly reintroduced the Law on Foreign Investment in Vietnam. In September 1988, the Foreign Investment Law was enacted. The Law was amended several times, notably in 1990, 1992, 1996, 2000 and 2003, and in 2005 a new Unified Investment Law was issued. Facilitating capital inflows and competing with neighbouring countries for foreign direct investment (FDI) are obviously high on the Vietnamese government’s agenda list. Within the short span of two decades, foreign investment has become a major growing factor in the country’s economy, contributing substantially to the recent development of Vietnam in many ways including increasing export and access to international markets, accelerating the process of international integration, deepening the cultural exchange, etc. Most importantly, foreign-invested firms are the main source of transfer of technology and management practices to Vietnam.

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

In Vietnam, the technology gap between foreign and domestic sectors is expected to create the spillover effects from FDI. Furthermore, FDI flows into Vietnam during periods when the country experiences important structural reforms; hence, its impact in introducing new ideas, technology and know-how is likely to be higher in Vietnam compared to that in other countries. Le (2007) finds significant positive spillover effects in Vietnam’s industry during 1995–1999 and comparatively lesser spillovers in 2000–2002. However, it is noted that compared to technology spillover, the effects in terms of management technologies in Vietnam is subject to little research, with some exceptions such as Zhu (2002), Le and Truong (2005) and Napier (2005). There is some evidence that SOEs lag behind MNCs, the latter offering higher wages and more sophisticated human resource management (HRM) policies (including performance-based pay schemes and better training) and thereby attracting younger and more talented employees out of the domestic SOEs into the MNCs (O’Connor, 1996; Vo, 2006). Similarly, Le and Truong (2005) point out that foreign-invested firms, in general, are more advanced in the adoption of some HRM practices, such as selection, compensation and benefits, and training, compared to SOEs. However, how MNCs transfer management technology and the extent to which HRM and industrial relations (IR) policies and practices have changed in SOEs as a direct result of spillover effects remain unclear.

1.2 The changing face of employment practices in Vietnam

The economic reform in Vietnam, in particular the reinforcement of the state sector and the emergence of the foreign-invested sector, has had an enormous impact on the structure of the Vietnamese economy and consequently on the working conditions of employees. With these rapid changes, expansion and diversification of the system, the traditional labour legislation proved increasingly inadequate. Recognising the necessity of adjusting to the changing labour situation, the Vietnamese government started passing a lot of new legislations addressing the issue since 1987. Most significantly, the new Trade Union Law was introduced in 1990, the Trade Union Constitution in 1993 and the Labour Law in 1994. These legislations have provided a common legal framework for new labour–management relations in both the public and the private sector and marked the beginning of the transformation of HRM and IR systems in Vietnam.²

Several studies have suggested that prior to the economic reforms, HRM and IR practices in SOEs were the product of the ideological, political and economic factors prevailing in that period, which followed the Soviet model (see, for example, Nguyen & Tran, 1997). Before Doi Moi, HRM/IR was centrally controlled by the state and characterised by a lifetime employment system, state-administered reward systems and labour immobility. The inflexible state-planning mechanism also deprived enterprises of the authority to recruit and dismiss employees. Employees were assigned their workplace according to a state plan, after which they could be linked to it for their lifetime. Labour mobility between enterprises, localities and industries was discouraged, if not stopped. Wages were calculated according to a government pay scale, based on detailed job categories, salary rates, salary grades and length of service. The remuneration system was rigid with narrow differentials within categories, which did not reflect the market value of labour. The variation among the grades was small in order to achieve ‘egalitarianism’. Performance appraisals were widely practised with only two main criteria – ‘fulfil responsibility’ and ‘moral/attitude’. Promotions to a great extent were decided on ‘moral’ aspects and connections. The unions’ role was to act as a ‘transmission belt’ between the party and the ‘mass’ (Fahey, 1995)...

Table of contents

• Cover image
• Title page
• Table of Contents
• CHANDOS ASIAN STUDIES SERIES: CONTEMPORARY ISSUES AND TRENDS
• Copyright
• Dedication
• List of Figures and Tables
• Acknowledgements
• About the author
• Abbreviations
• Chapter 1: Introduction
• Chapter 2: Vietnam as a transforming country
• Chapter 3: Recruitment and selection
• Chapter 4: Performance management
• Chapter 5: The reward system
• Chapter 6: Training and development
• Chapter 7: Industrial relations
• Chapter 8: Discussion and conclusions
• References
• Index