Sustainability in Asia: The Daunting Complexities in Vietnam (part one)

Published on January 2020 by Fred Waelter

As supply chains spanning Asia evolve in the wake of the U.S.-China Trade War and long-standing sustainability challenges throughout the continent, as well as lingering instability and disruptions to business continuity in Hong Kong, retailers and brands are searching for alternative supply chain partners in nearby nations.

Vietnam stands near the top of the list of possibilities as a nation increasingly making moves to attract international business. Many brands and retailers are considering beginning, or increasing, sourcing for a variety of products from Vietnam as the country’s manufacturing center evolves and diversifies to cover a broader list of goods beyond traditional soft goods, footwear, and apparel products. After spending a year in Ho Chi Minh City, Vietnam, hiring and training auditors as well as performing sustainability audits and special investigations for an array of corporate partners, I’ve gained some valuable insights from the field related to the special circumstances present in Vietnam that create lingering challenges for responsible sourcing, including difficulties in detecting social responsibility issues as well as struggles in working with Vietnam-based suppliers to correct identified issues.

Many corporations have previously remarked that audit reports from the field provide an impression that laws in Vietnam are complex and challenging to understand. The difficulty curve for Vietnam is much steeper than understanding the legal complexities for China. By comparison, after spending three months auditing China, the laws related to sustainability, which documents support compliance with which requirements, and the general basics of field auditing are clear. n Vietnam, even traveling on-site every week, with intensive training and a solid set of legal documentation for reference, it can take months to fully understand what is necessary to conduct a complete audit, specifically, payroll and the laws that govern payroll, are extraordinarily challenging to navigate.

Vietnam does not have one single set of labor laws. The labor laws in the country are overseen by an assortment of Ministries and regulations are promulgated through a gazette system. Updates to regulations are released ad hoc, whenever an individual ministry decides to release them, and the content of those updated regulations may touch on an assortment of issues instead of a single issue. Navigating the labor laws in Vietnam requires an in-depth knowledge of multiple legal frameworks and understanding of which laws take precedence in the event of conflicts.

Vietnam also lacks a nationwide minimum wage. Instead, minimum wage rates are for a factory to reference in setting up its own wage scale and table; it is the responsibility of an individual site to establish a wage scale for every department and role. This can be quite complex as it requires every single possible role and level of seniority to be outlined in a wage scale that then needs to be approved by the local authority – if the local authority rejects the scale, then it is sent back for revision. Assuming the facility garners wage scale approval, it must be applied – meaning some sort of skills test to assign individual workers into the proper categories and establish a path for ascending the pay scale. If the facility doesn’t have this in place, then it isn’t possible to evaluate the minimum wage except at a regional level, making it challenging for an auditor to answer “is the minimum wage paid?” because the wages paid may be higher than the regional minimum, but without the wage scale, it is impossible to know whether or not the actual wages paid are correct. Considering these difficulties, an auditor attempting to calculate if piece-rate wages are in compliance is an incredible challenge.

There is a draft of a new set of nationwide labor laws circulating for debate, but no publicly available information indicates that it will simplify the current system or offer relief to some of these sustainability auditing challenges. There are interesting changes proposed, such as the ability to terminate a worker after being absent for five days in a row or providing false information on qualifications as a condition of employment. There is even one proposal to increase overtime premiums from 150%, 200%, and 300% for regular day, rest day, and national holiday overtime, to new rates of 180%, 240%, and 360%, but industry will likely fight this particular proposal. That said, nothing will make the laws less complex, since part of the complexity is the multiple sources of information that a factory needs to reference to understand the bigger system.

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