Labor Cost Rising Fast in Vietnam
A number of South Korean cosmetics companies flew to Vietnam after China's THAAD retaliation in 2016. Now, most of the companies are not found there.
South Korean companies started to invest a lot in Vietnam in the 1990s. At present, business environments in Vietnam are not that favorable. Especially, its rapid economic growth has led to a sharp increase in land and labor costs. “Vietnam was very attractive in terms of labor cost until the early 2000s, yet its current labor cost is 10 to 20 percent higher than those of the other ASEAN member countries,” said Baek In-jae, who is in charge of LS Cable & System’s business in Vietnam and Myanmar, adding, “Besides, the minimum wage here is rising 6 percent a year.”
In addition, the purchasing power of Vietnamese consumers is yet to mature enough. The country’s GDP per capita was US$2,552 last year, which South Korea recorded in 1985 and China recorded in 2007. “The Go Vap branch of emart located in Ho Chi Minh is the world’s largest emart branch in terms of the number of visitors, which amounts to 10,000 even on an average weekday,” said local emart manager Jung Hyun-sung, continuing, “Still, the average price paid by the visitors stands at 15,000 won, which is equivalent to one-sixth to one-fourth of that in South Korea.”
These days, the industrial structure of Vietnam is changing fast and the Vietnamese government is shifting its focus away from light industries. For example, Ho Chi Minh City is currently focusing on investment attraction into nine service industry sectors and four non-service industry sectors. At the same time, the Vietnamese government is encouraging the use of domestically produced components.
Moreover, South Korean startups are facing intensifying competition in Vietnam with more and more local startups appearing. “A lot of young people are launching their own startups here after studying abroad and the Vietnamese startup market is becoming harder and harder to penetrate,” said MVL CEO Woo Kyung-shik, who is providing a pilot service of TADA in Vietnam.