INTERNATIONAL JOURNAL OF BUSINESS STUDIES VOL 18 NO 1, JUNE 2010: pages 75 to 100

GLOBALISATION, COMPETITIVENESS
AND HUMAN RESOURCE
MANAGEMENT IN A TRANSITIONAL
ECONOMY: THE CASE OF VIETNAM
Quang Truong*, Beatrice IJM van der Heijden** and Chris Rowley***

In the light of competition and the search for sources of competitive advantage,
developing and managing human resources has increasingly become the focus of
attention in some countries. The importance of human assets for success has been
recognised and stressed in developed, as well as developing, countries. For example,
in Vietnam a new focus was driven by the doi moi (renovation) policy that was
meant to shift a rigid centrally planned system towards a more flexible market-
oriented economy. The consequent structural reforms revealed several impediments,
including human resource management systems, slowing the pace of development and
global integration with implications for competition. This study reassesses the status
of people management in Vietnam and argues for the need for better management and
development of its human capital.

Keywords: globalisation, competitiveness, HRM, transitional economy, Vietnam

I. INTRODUCTION

While globalisation may be making the world a better place for some (Sorman, 2007:
35), it can simultaneously create problems for the economy and businesses of a
country. Vietnam is facing the same challenges as some other emerging economies
seeking to compete in globalised markets. After many years of war and post-war
readjustment, in the 1990s Vietnam started to rebuild its economy. Both the process of
change toward a market-oriented economy and integration into the global economic
mainstream, requires highly qualified people. The latter is of even greater importance
as Vietnam has been applying a development model based more on free market
economy principles with a socialist orientation (kinh te thi truong theo dinh huong
xa hoi chu nghia), while at the same time aiming to join the industrialised countries
club by 2020 (CPV, 2001).

In order to achieve these goals Vietnam began to place greater emphasis on a more
balanced and quality-focused economic growth pattern (Doanh, 2006; Viet, 2006)
after a sustained period of high quantitative-focused growth. The pursuit of
competitiveness in the face of increasing free trade agreements has encouraged the
government and business (public and private sector alike) to readjust the workforce to

*
The Eastern University of Management and Technology, Thailand
**
Radboud University, Institute for Management Research, Nijmegen, the Netherlands;
Open University of the Netherlands; University of Twente, the Netherlands
***
Centre for Research on Asian Management, City University, London, UK

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Globalisation, Competitiveness and Human Resource Management in a Transitional Economy:
The Case of Vietnam

the new conditions. Significant milestones include membership of the ASEAN

(Association of South East Asian Nations) Free Trade Area (AFTA), the conclusion of
the US-Vietnam Bilateral Trade Agreement (2001) and WTO membership (2007). All
these events necessitated even more rapid and comprehensive changes in economic
(macro level) and organisational (micro level) structure towards a more value-added,
manufacturing-based and export-oriented economy. Under the mounting pressure of
competitiveness enhancement and the new strategic orientation, the critical role of
human resources (HR), HR management (HRM), and HR development (HRD) have
become more urgent (Cam Ha, 2006). While the fallout of the post-2008 global credit
crunch and consequent financial crisis is important, it does not necessarily undermine
our thesis on the growing importance of HR and HRM in this economic shift.

Vietnam is in many aspects a typical case of an emerging economy undergoing

significant change that puts a premium on the task of utilising and further developing
its abundant HR (Quang, 2006). This can be achieved with HRM and HRD strategies.
This case of Vietnam will provide a valuable example for countries with similar
conditions to draw lessons and learn from. This paper analyses the way HRs are
managed and stresses the need for a HRM strategy to enhance competitiveness in
response to globalisation.

The paper is structured as follows. This introduction is followed by sections covering:

some relevant literature on globalisation, competitiveness and HRM, the countrys
socio-economic base; competitiveness enhancement; HRD and HRM for
development; future challenges and its illustrations by three informative cases;
possible solutions to bridge the gaps and an implications and conclusion section.

II. GLOBALISATION, COMPETITIVENESS AND HRM

The links between globalisation, competitiveness and HRM may seem axiomatic.
They have also been made in the literature. For example, as pointed out by Porter
(1990), a skilled, flexible and well-educated workforce is perhaps the single most
important source of competitive advantage for an economy. It is asserted that HR is
vital for the sustainability of all types of organisations (Heneman et al., 2000). Thus,
Schuler and MacMillan (1984) and Newall (1992) advise North American companies
and managers to compete in the global marketplace through renewed commitment not
only to innovation and research, but also HRD. For Schuler et al. (1993), globalisation
necessitates understanding how multinational enterprises (MNEs) can operate
effectively, with a major component of this understanding concerning HRM.
Cesyniene (2008) reviews challenges arising from globalisation and the impact of
HRM practices in industrialised countries (UK, US, France and Lithuania).

Within this perspective, some view HR and their management as critical. For
example, the main source of completive advantage is the development of firm-specific
resources that generate knowledge, quality (of products, services and processes),
innovation and flexibility, with bundles and packages of consistent, integrated HRM
practices and linked to business strategy (Dmitrovic and Zupan, 2001). Such views are
made both theoretically (inter alia, Barney, 1991; Lado and Wilson, 1994) and
empirically (inter alia Snell and Dean; 1992; Swiercz and Spencer, 1992; Boxall and
Steenevelde, 1994; Khandekar and Sharma, 2005). More recently, Faugoo (2009)
provides cases of organisations (French, German and Indian) employing a resource-

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based view for managing their workforce with employees at the core of organisations.
A useful summary of some of the literature in the area of the relationship between
HRM and competitive advantage is given in Vokic and Vidovic (2007). Thus, the
resource-based view suggests HR systems can contribute to competitive advantage by
facilitating the development of competencies that are firm-specific and embedded
(Vokic and Vidovic, 2007).

However, in contrast to this some others cogently argue that HRM may not really be a
resource contributing to competitive advantage (Wright et al., 1994; Boxall and
Purcell, 2000) as it does not display key attributes (see Vokic and Vidovic, 2007).
First, it is not valuable in the sense that it exploits opportunities and/or neutralises
threats in an organisations environment. Second, it is not imperfectly imitable. Third,
it is not unique as there are there are equivalent substitute resources that are valuable
but are neither rare nor imperfectly imitable (Ibid).

Despite these opposing schools of thought, globalisation is seen to exert pressure on

the HRM function to adapt to changing organisational needs and add greater value
(Friedman, 2007) and organisations require world-class competencies and elaborate
processes for managing talented HR (Khandekar and Sharma, 2005). This
development may occur though benchmarking and best practices; although both
concepts remain contested, for example, with their meanings and transferability in
Asia questioned (see Poon and Rowley, 2008).

Nevertheless, despite these sorts of caveats, views that HR and their management
contribute to competitive advantage and organisational performance remained
entrenched. Examples include work on other so-called economies in transition, such
as Croatia (Vokic and Vidovic, 2007) and Slovakia (Zupan and Dmitrovic, 2001),
especially regarding small firms (Ferligoj et al., 1997). These countries have some
factors in common with similarly emerging economies in South East Asia, such as
Vietnam (Rowley and Warner, 2010).

There is some similar literature on the Asia-Pacific region. Rowley and Warner (2006)
cover globalisation and competitive advantage of large businesses in Asia, while
Rowley and Warner (2008) take a wider sweep of globalisation, including Asia. On
developed Asia, Selmer (2001) and Debroux (2004) examine how Japanese
organisations adapt HRM policies and practices in response to globalisation. Rowley
and Bae (2001; 2002) analyse the impacts of globalisation (and institutional and
cultural constraints on it) on HRM using the example of South Korea.

There are also works covering South East Asia (Rowley and Abdul-Rahman, 2008).
On Indonesia Habir and Larasati (1999) stress the need for HRM to change in a
globalised economy. In some South East Asian countries, such as Vietnam, high-
quality HR are seen as the key to growth and development (SEAMEO, 2005; Vo and
Rowley, 2010).

In sum, in a fast changing global economy, Vietnams ability to succeed is under

threat and needs to change (Rowley and Quang, 2009a). Vietnam will no longer be
able to compete on the basis of low cost as this source of competitive advantage will
migrate elsewhere. To try to continue in this mode will involve a downward spiral
around low cost competition, which is dangerous and harmful for long term and with
impacts on types of HRM and HRD and their key policies and practices. We can see

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Globalisation, Competitiveness and Human Resource Management in a Transitional Economy:
The Case of Vietnam

the main thrust of these ideas, and how they feed won into each other, in the
conceptual framework below.

FIGURE 1:
CONCEPTUAL FRAMEWORK

Globalisation

Competitive Advantage
Organisational Performance

No HRM Yes
<- Resource ->
<- Benchmarking ->
<- Best Practices ->

Competition Models Using HR

Low quality/cost High quality/cost

Short-term cost focus Long-term quality focus
Numerical flexibility Functional flexibility
Labour costs Training and development

Simple HRM Sophisticated HRM

III. NATIONAL SOCIO-ECONOMIC BASE

Vietnam is situated at a strategic crossroads in the Asia Pacific region, where the
worlds highest economic growth in recent years has been achieved. It is a large,
young nation in terms of population (85.3 million) and workforce (43.5 million), with
an average of one million jobseekers joining the labour market annually (Indexmundi,
2007; Huong Ly, 2006). About 80% of the population is based in the rural areas,
where unemployment among youngsters (mostly in the form of under-employment), is
20% compared to just 4.4% in the urban areas (Ngoc Minh, 2007). Almost half the
countrys population is just 25 years old or younger and nearly two-thirds (60.2%)
forms part of the working population, which is equally distributed among men and
women.

On a comparative basis, the average age of the Vietnamese population (26 years) is
five to six years below that of Thailand (31), and China (32) (see Table 1 for more
information). This fact has far-reaching implications as Vietnams relatively young
labour force could be cultivated as it is the countrys main advantage for sustained
high economic growth and certain competitiveness types (Mekong Capital, 2005).
There is also a high level of labour intensity, gender inequality and labour numerical
flexibility and mobility (Rowley and Quang, 2009b). The labour force is generally
well-educated and hard working, yet, lacking creativity, partly due to the rigid
educational system.

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TABLE 1:
REGIONAL COMPARISON OF DEMOGRAPHY, LITERACY AND EDUCATION

Country Average age (years) Average literacy rate (%) Average years of education
Cambodia 20 69 9
China 32 91 10
Indonesia 26 88 11
Laos 19 66 9
Thailand 31 93 12
Vietnam 26 90 11
SOURCE: Mekong Capital (2005).

As shown in Table 1, Vietnam has a level of basic education that is comparable to

China, Thailand and Indonesia, with each country reaching a 90% literacy level, and
10-12 years of average education for the young. These indicators have significant
implications for the quality of the labour force with regard to worker productivity,
adaptability to new technology and possible development of competent managers that
are needed for the countrys competitiveness and development.

The labour force in Vietnam is heavily sector-focused in agriculture-forestry-

fisheries (24 million, 56.8% of the total), with less in industry-construction (7.7
million, 17.9% of the total) and services (11 million, 25.3% of the total). As a result of
economic liberation the non-state sector provides 38 million jobs (88.2% of the total),
while the state sector only employs 4.4 million people (10.2% of the total) but with
the foreign-invested sector employing just 0.7 million (only 1.6% of the total) (Huong
Ly, 2006).

Vietnams renovation policy (doi moi) aimed to produce a market economy with
socialist characters. This was a practical adoption of the model initiated by Deng
Xiaoping in China some ten years before and it has led to similar results. It enabled
Vietnam to make substantial progress in moving from a low level of development to
enhanced socio-educational conditions at a speed even faster than China and India
(Bradsher, 2006). Over 8% annual gross domestic growth (GDP) rates were reached
during 1991-95 and a yearly average of 7% was consistently maintained in the decade
that followed, even against the backdrop of the 1997 Asian Financial Crisis (see Table
2). This made Vietnam the second fastest growing economy in the Asia Pacific region,
after only China, over the same period.
TABLE 2:
ECONOMIC GROWTH DEVELOPMENT IN VIETNAM (1976-2005)

1st Five- 2nd Five- 3rd Five- 4th Five- 5th Five- 6th Five-
Year Plan Year Plan Year Plan Year Plan Year Plan Year Plan
(1976-1980) (1981-1985) (1966-1990) (1991-1995) (1996-2000) (2001-2005)
1976: NA 1981: 2.3 1986: 6.5 1991: 6.0 1996: 9.4 2001: 7.1
1977: 2.8 1982: 8.8 1987: 3.4 1992: 8.6 1997: 8.2 2002: 7.0
1978: 2.3 1983: 7.2 1988: 4.6 1993: 8.1 1998: 5.8* 2003: 7.0
1979: 2.0 1984: 8.3 1989: 2.7 1994: 9.0 1999: 4.8* 2004: 7.5
1980: 1.4 1985: 5.7 1990: 2.3 1995: 9.5 2000: 6.8 2005: 8.4
Average: Average: Average: Average: Average: Average:
0.4% 6.4% 3.9% 8.2% 7.0% 7.4%
NOTE: NA = Not Available; * Asian financial crisis (1997-1998).
SOURCE: Aggregated statistics from several sources, e.g. Draft Political Report to the 8th CPV Congress; Tuoi
Tre, June 1996; Vietnam Economic Times, 2003; VVG-Economic Indicators, 2004; IMF, WB, US Commerce
(2004); Asia Times Online (2004); Quang (2006).

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Globalisation, Competitiveness and Human Resource Management in a Transitional Economy:
The Case of Vietnam

Nevertheless, in spite of these achievements, Vietnam has often found itself lagging
behind (tut hau), especially with some other economies in the region. For example,
Vietnams per capital GDP is only about 42% of Chinas. Assuming that Vietnams
GDP continues to grow at 7.1% annually, it would take 12.7 years to catch up with
Chinas current GDP per capita level (see Table 3 for more information), 20-25 years
to close the gap with Thailand (Tho, 2001), and 197 years to reach the level of
Singapore (Cam Ha, 2006). That is to say, if we evaluate Vietnams progress to
becoming a fully-fledged industrialised country (mot nuoc cong nghiep), quite
some time is still needed.
TABLE 3:
GDP GROWTH COMPARISON (2004)

Growth Average GDP Per capita Years behind

Population
Country rate growth rate GDP China in per
(million)
(%) 2000-2004 (US$) capita GDP
Cambodia 4.3 5.5 13 336 24.2
China 8.8 8.4 1,299 1,225 -
Indonesia 4.5 4.1 238 913 7.3
Laos 5.0 5.3 6 332 25.3
Thailand 6.4 5.1 65 2,520 14.5 (ahead)
Vietnam 7.5 7.1 83 514 12.7
SOURCE: Mekong Capital (2005).

It is further suggested by some commentators that Vietnam could have developed

faster than China as the two countries have followed the same model of development.
Yet, economic growth in China has typically exceeded the Vietnamese rate by about
2% annually, and its inflows of foreign direct investment (FDI) are twice as high
(Khuong and Haughton, 2004).

Nevertheless, in the two years prior to the Asian Crisis, Vietnam enjoyed high growth
rates, which helped to narrow the gaps with other countries in ASEAN. However, this
momentum was lost for a number of reasons. First, an inefficient use of public
resources occurred. Second, the under-developed nature of capital markets remained.
Third, the private sector was not given the expected freedoms. Fourth, red tape,
corruption, inconsistent and insufficient legal framework and lack of a transparent
governance mechanism, continued (Rowley and Quang 2009c; Massmann and
Rowley, 2009). Fifth, abundant manual workers at the bottom of the labour market
pyramid combined with a serious dearth of skilled workers, partly due to the
educational system, remained. Sixth, most importantly, a general lack of
professionalism and competency in business management across all sectors of the
economy, with the exception of foreign-owned firms, remained endemic.

As Zhu (2002) observed, China and Vietnam are both pushing for micro-economic
efficiency, flexibility and competitiveness. In the area of HRM, however, the changes
in China seem to be more radical (Zhu, 2002: 131) compared to Vietnam, especially in
the practices of individual contracts, freedom in HR selection and individual
performance pay (Benson and Zhu, 1999). Without a more effective HRM strategy,
this gap may further widen, and consequently reduce Vietnams competitiveness.

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IV. ENHANCING COMPETITIVENESS

The Growth Competitiveness Index (GCI) of Vietnam has continuously declined,

despite a constant growth trend in GDP, while other countries in the region (e.g.
Indonesia, Malaysia, the Philippines) have been improving their rankings (see Table
4). A benchmarking of sub-indices (Basic Requirements, Efficiency Enhancers, and
Innovation Factors) used to gauge competitiveness of countries sheds some further
light on the most vulnerable areas of Vietnams potential for growth and areas for
improvement (see Tables 5A, 5B and 5C).
TABLE 4:
GROWTH COMPETITIVENESS COMPARISON INDEX (GCI) (2000-2008)

2000 2001 2002 2003 2004 2005 2006 2007 2008

N=75 N=75 N=102 N=102 N=117 N=125 N=125 N=131 N=130
ASEAN
Cambodia - - - - - 111 103 110 107
Indonesia 43 64 69 72 69 69 50 54 54
Malaysia 24 30 30 19 31 25 26 21 21
Philippines 36 48 63 66 76 73 71 71 70
Singapore 2 4 7 6 7 5 5 7 5
Thailand 30 33 37 32 34 33 35 28 34
Vietnam 52 60 62 60 77 74 77 68 69
OTHERS
China 40 39 38 44 46 48 54 34 30
India 48 57 54 56 55 45 43 48 49
Korea 28 23 25 18 29 19 24 11 13
(South)
Taiwan 10 7 6 5 4 8 13 14 17
Vietnam
ranking 23 15 40 42 40 51 48 63 61
(distance
with the
lowest)
SOURCE: Compiled from www.weforum.org, accessed 31-01-2009; note = the total number of surveyed countries
(n=130 in 2008, n=131 in 2007 and n=122 instead of 125 in 2006) was changed and adjusted in the 2009 published
ranking report of the World Economic Forum (WEF).

TABLE 5A:
COMPONENTS OF COMPETITIVENESS AND SUB-INDICES FOR
ASEAN COUNTRIES (2008)

Sub-index
GCI
Country Basic Efficiency Innovation
(N=134)
requirements* enhancers factors
Cambodia 109 107 115 112
Indonesia 55 76 49 45
Malaysia 21 25 24 23
Philippines 71 85 68 67
Singapore 5 3 2 11
Thailand 34 43 36 46
Vietnam 70 79 73 71
Vietnam ranking in ASEAN (N=7) 5 5 6 6
NOTE: * Institutions, Infrastructure, Macro economy, Health and Primary Education.
SOURCE: Compiled from www.weforum.org, 2008 World Economic Forum, accessed 30 May 2009.

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Globalisation, Competitiveness and Human Resource Management in a Transitional Economy:
The Case of Vietnam

TABLE 5B:
COMPETITIVENESS COMPARISON FOR ASEAN COUNTRIES
(EFFICIENCY ENHANCERS, 2008)

Efficiency Higher Goods

Technological
Country enhancers education & market
readiness
(N=131) training efficiency
Cambodia 115 127 88 123
Indonesia 49 71 37 69
Malaysia 24 35 23 34
Philippines 68 60 81 70
Singapore 2 8 1 7
Thailand 36 51 46 66
Vietnam 73 98 70 79
Vietnam ranking in ASEAN (N=7) 6 6 5 6
SOURCE: Compiled from www.weforum.org, 2008 World Economic Forum, accessed 30 May 2009.

TABLE 5C:
COMPETITIVENESS COMPARISON FOR ASEAN COUNTRIES
(INNOVATION AND SOPHISTICATION FACTORS, 2008)

Innovation factors Business

Country Innovation
(N=131) sophistication
Cambodia 112 110 112
Indonesia 45 39 47
Malaysia 23 22 22
Philippines 67 57 76
Singapore 11 14 11
Thailand 46 46 54
Vietnam 71 84 57
Vietnam ranking in ASEAN (N=7) 6 6 5
SOURCE: Compiled from www.weforum.org, 2008 World Economic Forum, accessed 30 May 2009.

The Table rankings help explain Vietnams poor performance, in particular with
regard to national policy and business effectiveness. These underline Vietnams
volatile position. To improve these institutional disadvantages (i.e. Basic
Requirements, Efficiency Enhancers, and Innovation Factors), more profound and
complete reforms, with due emphasis on the strategic role of human capital at both
macro and micro levels, are needed.

One survey (in 2004, N = 544, 31% state-owned, 42% private, 16% foreign-owned,
and 11% mixed ownership) in Vietnams three biggest cities of Hanoi, Haiphong Ho
Chi Minh City (HCMC), found nine components were used to measure the
competitiveness of enterprises (see Table 6). Most notably, quality of labour instead
of large and cheap labour, was listed as one of the key ways to improve competitive
position (MOLISA, 2006).

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TABLE 6:
KEY COMPONENTS OF COMPETITIVENESS (N = 544)

Nr. Group Key measures

1 Government and Fiscal Policy
2 Institutions
3 Infrastructure
4 Human resources
5 Technology
6 Finance
7 Openness
8 Supporting industries
9 Domestic competition
SOURCE: Khuong and Haughton (2004).
Tax rates; government efficiency, and transparency
Regulatory burden, functioning legal system, low crime
Quality and cost of roads, electricity and telecommunications
Cost and quality of labour
Spending on R&D; numbers of scientists, and engineers
Ease with which good entrepreneurial ideas can be financed
Extent to which an area is open to trade with outside world
Availability of local supplies; industrial clustering
Vigour of local competition

Given Vietnams low capacity to respond to the new business conditions, the quest for
enhancing competitiveness intensified after WTO membership. According to one
expert, almost 95% of local firms are classified as small- and medium-sized
enterprises (SME) in the start-up phase, with weak infrastructure bases, technology,
cross-border experiences and management skills as well as HR (TBKTSG, Editorial,
2007). At the same time, it is estimated that only 8% of local firms felt a sense of
urgency or somewhat prepared for the impacts of globalisation (TBKTSG, Editorial,
2007). This suggests that the countrys competitiveness policy should put a premium
on enhancing the quality of the countrys workforce. Such a stance should focus on
developing and implementing an effective HRD strategy (input) and HRM practices
(output) throughout the entire economic structure.

V. HRD AND HRM FOR DEVELOPMENT

Education and training form the basis for HRD, which is the essential prerequisite for
a broader socio-economic development platform. The requirements for growth,
coupled with expanding regional and global integration, are other dimensions that
need to be considered to be able to assess the critical mass of professionals of all
kinds, especially in management (Quang, 1997). It can be shown that the rate of
economic development is positively correlated with investment in HRD (Yanagi,
1993). Accordingly, the competitiveness of a country or organisation lies in the
strength of its workforce and the HRD undertaken. That is to say, it is more a question
of quality rather than quantity, with an emphasis on how to develop, motivate and
retain the most valuable assets of a country or organisation, rather than to simply
trying to balance supply and demand in the labour market.

In this respect, an attempt to link competitiveness scores with the Human

Development Index of a country gives some insights into the relatively inferior and
deteriorating position of Vietnam as compared with other ASEAN members (see
Table 7). It is believed that the most effective way to close the competitive gap is to
pay more heed to training and lifelong education of their workforces (The Nation,
25-6-2001).

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Globalisation, Competitiveness and Human Resource Management in a Transitional Economy:
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TABLE 7:
RELATIONSHIP BETWEEN COMPETITIVENESS AND HUMAN DEVELOPMENT (2006)

Country, Income* GCI ranking HDI** ranking Education

Score HDI
ASEAN category (N=125) (N=127) index
Singapore High 5 5.63 25 0.916 0.91
Malaysia Medium 26 5.11 61 0.805 0.84
Thailand Medium 35 4.58 74 0.784 0.86
Indonesia Medium 50 4.26 108 0.711 0.83
Philippines Medium 71 4.00 84 0.763 0.89
Vietnam Low 77 3.89 109 0.709 0.81
Cambodia Low 103 3.39 129 0.583 0.76
Myanmar Low - - 130 0.581 0.69
Laos Low - - 133 0.553 0.66
SOURCE: Compiled from www.weforum.com; www.hdr.undp.org; UNDP (2006).
NOTES:
* High Income equals GNI per capita of US$10,066 or more, Medium Income equals GNI per capita between
US$826 and US$10,066, Low Income equals GNI per capita between US$825 or less;
** HDI (Human Development Index used by UNDP) is a comparative measure of life expectancy, literacy,
education, and standard of living for countries worldwide.

In the case of Vietnam, education and training in management is of utmost importance

to give a boost to modernisation and industrialisation. However, as we noted, while
the labour market is abundant and the literacy rate is comparatively high, the country
has a serious shortage of skilled HR capable of handling work required in more
developed industries and services. For instance, it is estimated that only 20% of the
workforce finished senior secondary school level (John, 2006). As more sophisticated
technologies are required to match global requirements for productivity and quality,
this will put a severe strain on the educational and training system. It is reported that
only 23%-30% of the countrys workforce received professional training of any kind,
which is about only one-third of the level in other emerging economies (Phuong Loan,
2008). However, there are plans to increase this to 32% by 2010 and 45% by 2015
(Nghe Nhan, 2007). For all sectors there is an urgent need for upgrading the skills of
managers (Swierczek and Lan Anh, 2000).

A cross-country survey (N = 28,000 employees in 156 companies) reveals that the

increasing amounts of FDI in restructured state-owned enterprises (SOEs) and new
private ventures have further increased the need for highly skilled labour and
competent managers, especially in the fields of marketing and corporate finance
(Hoang Hong, 2007). As regards to top level management, a survey (N = 63,000, in 36
provinces and cities across the country) found that 43.3% of their Chief Executive
Officers (CEO) had some kind of high school education, 54% had university, college
or professional education, but only about 3% had a postgraduate degree (Ho Van,
2007). The survey also noted that only a small number of top managers had any kind
of basic training in economics and business administration (Ho Van, 2007).

Another survey discovered that the stock of Vietnamese owners are relatively weak,
not especially in capital, technology and production scope, but more in strategic
vision, managerial knowledge and skills and operational capability in competing with
their counterparts in the region (Ho Van, 2007). Therefore, a government-sponsored
HR training program for SMEs was developed and used in 2004-08 to help start-up
companies and individuals and with specific objective to provide owners with the

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knowledge, including in HRM, needed for business expansion in the country and
abroad (Gross and Weintraub, 2005).

Changes in HRM have started to gain some momentum in Vietnam as a result of

increasing inflows of FDI and attempts to adapt to global business practices (Vo and
Rowley, 2010). The integration of foreign-invested enterprises into the Vietnamese
economy since the 1990s has, brought some valuable role models of well-managed
organisations and triggered a sense of urgency for local companies to follow. This
shift is especially true in the area of HRM as growing numbers of local enterprises
have become increasingly aware of its importance and usefulness and hence have
started to adopt some examples of best practices in order to improve their overall
HRM and HRD capability. However, there are issues and problems in what are best
practices and how transferable they may be, especially in Asia (Poon and Rowley,
2008) and institutional constrains (Vo and Rowley, 2010). Also, due to the lack of a
long-term view, and of professional competencies to meet the requirements for
strategic HRM, these initiatives usually turn out to be short-lived and tend to be more
quick-fix solutions rather than anticipatory measures carefully designed to cope with
future business development (Quang, 2006).

As conditions have become more competitive, companies face pressure in recruiting

skilled and talented people at the top of the labour market. One survey (7 firms: 2
SOE, 2 equitised/joint-stock, 1 joint-venture, 2 foreign-owned) found that most
managers and employees are eager for changes and willing to adopt new ways of
doing things (Zhu, 2002: 133). More specifically, some local companies began to
introduce HRM concepts and principles, such as the importance of line managers,
freedom in HR selection, and to a lesser extent a strategic role for HR managers (Zhu,
2002: 126).

There is some evidence to conclude that the more value management places on HR,
the more extensive is the application of HRM practices in companies (e.g. Kamoche,
2001; Thang and Quang, 2005; Zhu, 2002; Zhu and Fahey, 1999). In the Vietnamese
context, the level of HRM practices may also vary from one enterprise to another
depending on the type of ownership. A cross-sector survey (N = 30, members of the
Club of HRM Practitioners in HCMC), shows a wide discrepancy between firms with
regard to the level of HRM practices. As shown in Table 8, the prevalence of HRM
practices is generally low in the public sector and a little higher in the private sector.
Furthermore, to what extent HRM practices are reflected in corporate long-term
business strategy and fully implemented (or put in to full practice), is also indicated
(Quang and Thang, 2004).
TABLE 8:
HRM STATUS ACROSS SECTORS IN VIETNAM (N = 30)

Sector Awareness Practice Strategy

Government agencies Low Low Low
State-owned enterprises Low-Medium Low Low
Private-owned enterprises Medium Low Low
Joint ventures High Medium-High Medium-High
Foreign-owned enterprises High High High
SOURCE: Quang and Thang (2004: 191).

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Globalisation, Competitiveness and Human Resource Management in a Transitional Economy:
The Case of Vietnam

LEGEND: The criteria for gauging the HRM current status are based on three levels:
1. Awareness: Understanding the strategic role of HRM; there is a physical HRM department or function in the
organisation.
2. Practice: HRM function handles all or part of HR activities; the level of professionalism in the organisation
(staff, process, procedure etc).
3. Strategy: the head of HRM department sits on management board; HR strategy is integrated into the companys
strategy; HRM department plays an important role in developing and implementing the companys strategy; the
companys strategy is focused on HR development.

Often, local Vietnamese companies do not have a HRM function, but a combined
function called Administration and Personnel Manager (Truong phong hanh chanh va
nhan su). If established, personnel managers only focus on administrative, even
secretarial, work concerning traditional personnel administration. These are rarely
involved in key decision-making on HR matters, such as planning, recruitment and
selection, compensation policy, training and development and employee retention, let
alone other critical issues with regard to the further enhancement of employability of
staff (see Fugate et al., 2006; Van der Heijde and Van der Heijden, 2006).

There is also a serious lack of essential HRM knowledge and skills within Vietnamese
companies to perform their tasks effectively. A study (89 Vietnamese SMEs) reveals
that the formality of HRM practices depends largely on the size of the company and
on the owners perceptions of firm performance (Nguyen and Bryant, 2004). More
often than not, company directors (who in case of private companies are also the
owner) consider HRM to be a power reserved item, and handle personnel matters
themselves, thus limiting the head of the personnel department to merely formalising
decisions made (Chien, 2002; Tan Duc, 2002).

A cross-sector survey (208 enterprises) showed a somewhat better development rate in

terms of awareness and recognition of the role of the HRM department in HCMC
(Chien, 2002). However, this location is where business is most highly concentrated
and far more advanced compared with other parts of the country (see Table 9).
TABLE 9:
AWARENESS AND PRACTICE OF HRM IN VIETNAM (N = 208)

Activities Importance ranking Level of practice

HR planning 10 9
Develop and implement compensation plan 9 5
Develop and manage HR budget 8 6
Training and development 7 10
Performance appraisal 6 7
Employee relations 5 2
Develop and maintain corporate culture 4 8
Recruitment and selection of HRs 3 4
External relations 2 3
Administrative management (salary, bonus etc) 1 1
NOTE: Scale ranges from (1) least important to (10) most important.
SOURCE: Chien (2002:13).

Nevertheless, with the exception of joint-ventures and foreign-owned firms, the

majority of Vietnamese enterprises are still in the first phase of development and
generally lack a strategic HRM focus and positioning (Quang, 2006; Zhu, 2002).
Often, many Vietnamese managers, especially in the SOE and private SME sectors,
practice personnel administration. In reality, traditional personnel management is still

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playing a crucial role among firms (Zhu, 2002: 132), as historical and ideological
barriers sometimes discourage the adaptation of new systems (Zhu, 2002: 133).
Constraints on the transfer and adoption of HRM even from foreign MNEs remains
(Vo and Rowley, 2010).

VI. FUTURE CHALLENGES

As the post-WTO era will be characterised by further economic development and

global integration and will open up business opportunities as well as challenges for
Vietnamese enterprises, strategic foci aimed at enhancing competitiveness through
human capital should be addressed (see Table 10). This can be seen across the
spectrum of the main HRM practices areas, from acquiring, utilising and developing
to retaining. Obviously, the level of challenges and prospects concerning HRM may
differ considerably in terms of urgency, scope and impact from one type of
organisation to another (Quang et al., 2008). Consequently, a company and sector-
specific HRM policy is needed in order to respond to the changing labour market and
HRD needs.
TABLE 10:
HRM CHALLENGES AND RESPONSES

HRM area Current status Solutions

Acquiring Recruitment and selection (R&S) not
regulated or standardised
External channels of recruitment not
fully exploited
Utilising No structured orientation
Placement and appointment based on
relationship rather than merit
Developing No or inappropriate training and
development (T&D) program
No career planning or succession
chart
Promotion based on seniority and
relationship
Retaining Pay under industry standard; no link
between pay and performance
Competent and willing performers
not recognised and rewarded
properly
No relationship between reward
policy and corporate business
development strategy
Lack of support from management
Working environment not
appropriate
SOURCE: Adapted from Quang (2006: 249)
HR planning and HR information
system (HRIS)
Job analysis and description
R&S based on job requirements and
qualifications of applicants
Standardisation of processes
Socialisation program for recruits
(corporate culture)
Best match job/qualifications
Define core staff (downsizing)
Use outsourcing alternatives
Reserve budget for T&D
Career plan for each employee
Succession plan
Job rotation
Development plan for executives,
potential managers and professionals
Industry remuneration review
(participation in industry salary survey)
Pay for performance; incentives linked
to key business indicators
Linking goal-setting and performance
achievement
360 degree evaluation and feedback;
performance management system
Better employee-employer relationship;
regular employee satisfaction survey

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Globalisation, Competitiveness and Human Resource Management in a Transitional Economy:
The Case of Vietnam

In this respect, a survey (2005, N = 41 of executive MBA international students in

Hanoi) dealing with the strategic role of HRM confirms our perception regarding the
growing concern of Vietnamese managers on the issue of building competitiveness
through people, although it is considered to be of less importance as compared to their
Singaporean counterparts. Typically, while sharing the same concerns about critical
HRM issues, such as recruitment, Vietnamese managers seem to worry relatively
more about training and developing staff (see Table 11).

TABLE 11:
HRM CONCERNS OF MANAGERS (IN ORDER OF IMPORTANCE):
VIETNAM AND SINGAPORE COMPARED

Order of importance Singapore* Vietnam** (N=41)

1 Recruitment Recruitment
2 Retention Training and development
3 Training Motivation
4 Compensation and rewards Retention
SOURCES: * Thuc Doan (2006); ** Quang et al (2008).

Given the serious shortage of skilled professionals and (middle and high level)
managers, the concern for recruitment is not groundless, and forces local firms to pay
higher rewards packages to acquire and retrain HR (Da Ban, 2007; Ngoc Hang and
Nh. Le, 2006), or to resort to foreign and overseas Vietnamese experienced
professionals (Tran, 2007). In particular, the search for CEOs has become extensive as
local sources can only provide 30-40% of demand, even where firms are willing to
pay high rewards (Ho Van, 2007). The brain drain and turnover rate is high,
especially in growing sectors such as IT, banking, financial audit and the stock
exchange, even when high rewards (US$6-12,000 per month plus benefits) are offered
(Dantri Online, 8-2-2008; Ho Van, 2008).

It is forecast that guest workers from the region, especially from the Philippines,
Thailand, Singapore and Malaysia, will have to be recruited in order to fill the skills
gap (Hoang Anh, 2007). One estimate is that up to 40,000 foreigners are currently
working in Vietnam because the local labour market cannot meet the requirements of
FDI projects (Tuoitre Online, 20-12-2007). As a general practice, many leading
foreign (e.g. BP, Coca-Cola, Intel, IBM, Foxconn, SKT) and local (e.g. FPT, Vinasa)
companies have to rely on their own initiatives to recruit and develop their workforce
to match job requirements (see later Cases 1 and 2).

The HR service industry has flourished to meet the growing demand for HR solutions.
The most prominent HR service providers are NetViet, Le and Associates (LandA),
Tan Duc (TDandT), VON (HRVietnam), HR2B, FirstAlliances, Price Waterhouse
Coopers, BandA Consulting, SmartHR and Navigos Group (see Table 12). However,
these companies are still relatively small, with no more than 60 professionals
employed in total, and with foreigners holding key positions in them and mostly
concentrated in HCMC. The service package they offer includes online recruiting,
headhunting for executive positions, personnel administration (payroll, outsourcing,
staffing, employee assessment and aptitude tests) and corporate training.

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TABLE 12:
HR SERVICE MARKET IN VIETNAM

Firm Established Nationality Location Main services

LandA 2001 Vietnam HCMC Online recruitment

(Le and Headhunting
Associates) HRM consulting
Administration
Training

FirstAlliances 1998 Australia HCMC Headhunting

HRM consulting
Administration
Training

HRVietnam 2006 Vietnam HCMC Online recruitment

(VON) Headhunting
Administration

SmartHR 2001 Taiwan HCMC Headhunting

HR consulting
Training

HR2B 2002 Australia HCMC+Hanoi Headhunting

HR consulting
Administration

NetViet 2000 Vietnam HCMC Headhunting

HR consulting
Administration

TD and D 1993 Vietnam HCMC Headhunting

Administration
Training

Pricewaterhouse 1995 Multinational HCMC+Hanoi Headhunting

Cooper (PWC) corporation HR consulting

B and A 1992 Vietnam HCMC HR consulting

SOURCE: Own desk work (2007).

HR service firms mainly concentrate on recruitment and administration services,

suggesting the sector has a short-term strategic intention and profit orientation and a
relatively low level of competence in the HRD area. Moreover, almost 90% of the
customers of HR service firms are foreign companies. Of course, we recall that the
majority of local companies are still in a transitional stage (Zhu, 2002:133), and still
too far away from adopting HRM practices as a means to upgrade their
competitiveness (Phuong Loan, 2002).

In the light of a long-term development perspective, an effective HRM policy should

be all-embracing to help develop and strengthen good and lasting relationships
between the companys key stakeholders (employees, employers, trade unions,
customers, etc), and to enable better work-life balance. There is evidence that a more
people-based HRM policy, together with a strategic alignment between the HRM
function and corporate management, yields excellent results in several settings, even
helping pull companies out of crisis (see later Case 3, Quang et al., 2008).

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Globalisation, Competitiveness and Human Resource Management in a Transitional Economy:
The Case of Vietnam

Next, we provide some informative cases illustrating the main challenges facing HRM
in Vietnam. The cases are used to enhance understanding of the economic
development and global integration Vietnam is facing and to stress the need for high-
quality HR. Yet, to cope with the issue of professionalism, most foreign-owned
enterprises have to take the initiative to set up their own training programs (see Case
1).

CASE 1: Developing HR for Growth: SK Telecom (SKT)

Since 2001 SKT of South Korea has invested in the post and telecom sector in
Vietnam through Saigon Postel to expand the S-Fone mobile network. In 2005 it
started to develop the SKT IT Centre with an investment of US$5 million. To meet its
own demands for highly skilled HR in the IT field, the SKT-SSU IT Training Centre
was opened in HCMC a co-operation between Soongsil University (of South Korea)
and SK C&C (a professional IT company also based in South Korea). The latter two
collaborated with HCMCs IT Training Institute (ITTI), a local partner, which was
chosen because of its experience and ability to expand in IT training.

SKT IT Centre aims to train IT experts in Vietnam as well as to find new business
opportunities in the IT industry. The Centre will establish and maintain cooperation
among IT enterprises of Vietnam and South Korea with the purpose of helping the
Vietnamese counterparts develop more strongly. The Centre will focus on developing
software packages for mobile phones. The SKT-SSU IT Training Centre will be
responsible for specialised training.

The Centre will run specialised training programs for Vietnamese learners designed
by SK C&C with Soongsil University. At the start SKT-SSU will focus mainly on
programs like Java, Oracle and Unix conducted by instructors from SKT South Korea
and Soongsil University and will last several months. Besides the fact that the training
program will be offered for free, another advantage is that the Centre has been
developed by an IT enterprise known for the effectiveness of its training activities.
After completing the course, learners can apply for an apprenticeship at SKT, or they
can be introduced to IT companies in South Korea. Learners with excellent results are
given a chance to continue their studies at Soongsil University. The first training
course of 40 learners selected out of 400 applicants ended in May 2008.

SKT IT Centre and SKT-SSU IT Training Centre provide strong evidence of the
companys long-term business activities in Vietnam with a special focus on HR
training.

Source: Adapted from Tuyet An, Human resources for IT growth, Saigon Times
Weekly, January 5, 2008.

Next, we give an example of a British company which adopted HR practices from its
headquarters while resorting to the local labour pool to fill its need for qualified HR.

CASE 2: Building a Local Workforce: British Petroleum (BP)

In setting up its new Vietnamese operations BP committed to recruiting and

developing a local workforce. In Vietnam, the oil industry is in its infancy and there is

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a huge shortage of relevant skilled workers. BP had to develop a recruitment and

development program that would ensure staff had the skills and behaviours necessary
to operate safely and efficiently. For instance, practical experience was important to
complement the knowledge gained through these training programs. Short-term
assignments at a construction facility in South Korea and at gas terminals in either
China or Indonesia allowed staff to gain experience on a live facility before the
Vietnam facilities were complete.

One of the biggest challenges in operating facilities concerns safety, so this played an
integral part in the development program. Two programs, a Hazard Photo Shop in
which employees were tasked with photographing and discussing hazards they saw in
everyday life; and a Golden Safety Rules workshop in which actors were invited to
bring the rules to life, helped to enhance a better understanding of the importance of
working safely.

BP continues to face the challenge of recruiting suitably skilled individuals to

maintain the safe and efficient operation of its Vietnam facility. In 2002 it took the
lead in setting up the Vietnam Process Industry Consortium. The aim of this
consortium was to bring together organisations within the process industry in Vietnam
in order to discuss common issues around training and development. This consortium
will work together to establish the common skills needs of the process industry and in
collaboration with local educational institutes develop and deliver a curriculum that
meets the industrys needs.

Source: Adapted from: Developing a Local Workforce in Vietnam,

http://www.api.org/ehs/partnerships/community/developing-vietnam.cfm

The following case shows a local company taking a human-based approach in dealing
with HR issues and thereby weathering a crisis and prospering further.

CASE 3: Nurturing Human Assets: Saigon Tourist Travel Service Co. (STTS)

For Mr Vo Anh Tai, the Director of STTS: The door of my office is never closed so
that everybody in the company can come anytime to directly discuss his/her problem
with me when needed. Similarly, I always keep my mobile phone open to make
myself accessible at all time. I also keep checking my email box on a regular basis to
receive feedback from all employees. If wanted, any employee in the company can
send an email to his immediate manager, with a copy to me. This is the best way that
helps me to keep in close contact with my workforce. His strategy of quality
growth aims at satisfying four stakeholders: business, customers, employees and
community. In fact, this people-based management approach had promoted him to the
position of Permanent Deputy Director at the age of 36 (in 2003) from the Sales
Manager of a hotel belonging to the Saigon Tourist Group. As he recalled, by that
time the Group had just received a severe blow from the SARS epidemic impacting on
visitors to HCMC. Consequently: the companys revenue dropped like a falling rock,
peoples morale was down to an alarming level, future business plans became
hopeless. All we could do immediately to rescue the situation was to stabilise the
companys business and the peoples mind.

Under these circumstances above, Mr Vo decided nothing would be more effective in

solving the crisis than to start with employee involvement in the campaign to rescue

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Globalisation, Competitiveness and Human Resource Management in a Transitional Economy:
The Case of Vietnam

the company. Instead of developing a strategy and implementation plan of his own, he
invited core personnel to participate in the process because: It is they who will be
directly executing the strategy, thus it is most logical and effective to discuss and
agree on the future course of action with them first, he reasoned. By doing so, STTS
was able to create a consensus for the entire company, the sine qua none to overcome
the crisis. Also, thanks to this people-centred approach, the company succeeded in
retaining its core human assets and the majority of its workforce throughout the
crisis since: If people are equally important as material assets in the hotel industry,
they mean everything in travel businesses. Working on boosting morale through
involvement and participation, Mr Vo believed that he had prepared the necessary
conditions for growth after the crisis by bringing back stability to both its business by
diversification of its services package and its workforce.

Mr Vos participative and communicative approach seemed to be effective in less than

one year of experimentation, which earned him a full directorship of the company in
2004. In 2005, some 50,000 overseas visitors used STTS. During the same period,
90,000 domestic tourists used the company in 80 travel programs.

Source: Compiled from Successful managers, TBKTSG, 5-1-2006, p. 2.

VII. POSSIBLE SOLUTIONS TO BRIDGE THE GAPS

In order to optimise the drive towards a more effective and competitive workforce, the
following trends in HRM should be continuously developed across sectors of the
Vietnamese economy. First, a more proactive search for, and acquisition of, qualified
HR, is needed. Second, more attention to retention of HR and talent management to
protect the existing, but scarce, human assets is required. Third, more extensive use of
HRD to build competitive edge is necessary. Fourth, building HRM professionalism
toward a fully-fledged centre of competence and a strategic partner in the organisation
is needed. Fifth, emphasising the task of management development to ensure an
organisations capability for long-term survival and growth is required. Sixth,
allowing more horizontal buy-in of high-level executive or professional positions,
which cannot be filled by locals, by third country nationals or by overseas
Vietnamese is necessary. Seventh, becoming more independent from government
control and intervention in the HRM activities of enterprises, especially as regards
acquiring and rewarding personnel is needed.

It is understandable that increasing numbers of enterprises in Vietnam have been

focusing on capitalising upon their human assets. In the long run, only companies that
have paid proper attention to HRM, among other strategic adjustments, will reap the
benefits of their efforts and survive (Quang and Thang, 2004).

VIII. IMPLICATIONS AND CONCLUSION

Vietnam has the potential to overcome many impediments on the way to further
development. Based on recent growth rates, the government set forth an ambitious
objective to turn it into an industrialised country by 2020. To realise this, a
consistent average growth rate of 7%-8% annually is required, and a 25% growth rate
in exports in the next two decades, that is 87 times higher compared to its current level

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(Tuong Lai, 2001). Certainly, the realisation of such an ambitious objective relies a
great deal on the governments (macro) and the enterprises (micro) capability to
deliver and to cope with conditions in world markets. The post-2008 global credit
crunch has impacted on this.

There is evidence that Vietnam was progressing in preparing itself for the challenges
ahead up to the post-2008 global credit crunch. There has been a dramatic (albeit
vulnerable) boom of the stock market, going from a total capitalisation level under
US$0.5 billion in December 2005 to the record of US$24.4 billion in 2007, with the
number of listed firms rose from 40 to nearly 200 (VietnamNet Bridge, 2007).
Moreover, boosted by WTO membership, FDI inflow in 2006 surged to US$10.2
billion, which is well above the US$6.2 billion in 2005 level, and surpassing the peak
level of US$9 billion of 1996 [US$545,455 in inflation-adjusted rate in 8-2008], with
an expected level for 2007 of US$12-13 billion, an increase of 20% as compared to
2006 (Anh Minh, 2007; Nhu Hang and Le Nam, 2007), a level which came under
stress in 2008-09. The ongoing developments form favourable conditions for growth
as a pre-condition for further integration and development in this fascinating and
rapidly changing country (McCargo, 2004), often seen as one of the worlds last
emerging markets (Von Glinow, 2004) and one of Asia most exciting and
enigmatic markets (Koziora, 2008).

Nevertheless, in spite of this impressive performance, Vietnam cannot afford to be

complacent and needs to pay continued attention to being more competitive (Khuong
and Haughton, 2004), and to proceed forward with prudent optimism (lac quan mot
cach than trong). However, some observers warned of too much optimism and a lack
of continued efforts (Nhu Hang and Le Nam, 2007).

Indeed, the ongoing global crisis has exposed a system with several deficiencies to be
addressed, especially in terms of good governance at the macro level and professional
management at the macro level. In order to survive this test, there is a high need for
quality policy makers with vision-orientation and capability to implement strategies
consistently. At the same time, to upgrade the competitiveness of the enterprises
requires a new generation of managers capable of managing, developing and retaining
talents to survive, grow and sustain in turbulent conditions (see Rowley and Quang,
2009).

The fact is that many workers in Vietnam still lack adequate job training (Gross and
Weintraub, 2005) and it seems that nothing can be done about it without a well-
designed and coordinated training and education strategy utilised by all local
companies with the aim to develop an up-to-standard workforce and to focus on
optimising the utilisation of available human capital, one of the countrys richest
internal strengths (noi luc). These macro measures will, in turn, not be brought to
full effect if they are not carried out in tandem with other structural overhauls to
improve the current level of governance by radically battling mismanagement,
corruption and building a more effective legal framework (Cam Ha, 2007; Massman
and Rowley, 2009). To do so, Vietnam should decisively shift its strategic focus on
achieving a higher level of qualitative development, not just quantitative growth as
in the past decade. As such, HRM will be put at the forefront of management needs
and skills. The most urgent task is to revamp the whole education and training system
to better fit the true demand for a more competitive workforce. Education and training
institutions, the business community and government agencies should work together

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Globalisation, Competitiveness and Human Resource Management in a Transitional Economy:
The Case of Vietnam

to build capacity of delivery for sustainable development. In the interim, the pool of
high level overseas Vietnamese professionals in technology and management can be
tapped to bridge the gaps (as it has been done in South Korea, Taiwan and recently in
China). Proven best practices of HRM can also be learned from well-established
joint-venture and foreign-owned companies, and multiplied in state-owned and private
enterprises.

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