Author: Shelley Nguyen
September 18, 2024
Introduction
An effect of trade liberalization and globalization, foreign direct investments (FDIs) have been spreading all across the world. FDIs are when a business invests in another country to expand. These companies invest in other countries for resource access, cost savings, comparative advantages, and other reasons. It is important to note the advantages and disadvantages for foreign enterprises. Overall, it is a mutual benefit for both the home and host countries. The home country could benefit from profit, while the host country can experience economic growth. For these reasons, more and more FDIs have been investing in Vietnam due to its economic ideology and resources, such as labor and raw materials. Although businesses and Vietnam’s economy gain from FDIs, the workers lose. Workers’ rights are violated because of low wages, long hours, poor working conditions, and weak bargaining power.
Benefits to Vietnam’s Economy
Vietnam is a major attraction for foreign direct investments (FDIs). Many foreign enterprises invest in Vietnam’s factories for their manufacturing process. Popular brands such as Zara, H&M, and Nike have factories in Vietnam. According to Vietnam’s Ministry of Planning and Investment, as of September 2023, “the whole country has 38,379 valid FDI projects with a total registered capital of 455.06 billion USD” (Linh). Within that number of FDIs, over 1,300 are fashion brands (Vietnam: Number of fashion and apparel chains 2023). The presence of FDIs in Vietnam has contributed to the country’s economic growth. When factories open, new jobs are created for Vietnamese people. The number of workers employed in the manufacturing industry steadily increases every year. For example, in 2021, 33.1% of employees were working in the industrial and manufacturing sector compared to 21.28% of employees working in the manufacturing industry in 2011 (O'Neill). Not only does it open more job opportunities, but also high-skilled jobs, such as managerial positions.
FDIs also diversified their economy. Foreign investors help develop underdeveloped sectors and assist in moving Vietnam from the agricultural sector into the manufacturing sector. This diversifies the products that are used for trade or domestic consumption. As well as sectoral and product diversification, there is also market diversification. One of the reasons why foreign investors invest in other countries is to find new markets to gain more consumers internationally. Instead of depending on one sector, like agriculture, countries could have multiple income sources to add to their Gross Domestic Product.
Workers’ Rights and Human Rights
Although FDIs are beneficial to Vietnam’s economy, they also harm the country by violating workers’ rights. Some FDIs that are invested in Vietnam are fast fashion companies. By definition, these companies have a rapid production cycle and are constantly demanding new styles with an emphasis on low prices. Because of this, these companies need countries that can produce clothing for a low labor cost and with weak labor rights protection.
In Anner’s research Squeezing Workers’ Rights in Global Supply Chain, he mentions that these short periods of product design, fast trends, and asymmetrical power balance in the market, cause raw materials to be more expensive (321). Producers also tend to overproduce to meet demand and the quick trend turnovers. Employers of factories will decrease the wages of workers to compensate for the high costs of raw materials. Also, because of the asymmetrical power balance, there are one or a few companies that dominate the market. These are typically large corporations as opposed to small businesses and new companies. These companies dominate because they have more technology, resources, network connections, and other reasons. Due to the competition, these leading firms will lobby governments to lower wages in order to compete with other firms. If the government refuses to or is unable to lower wages, they will demand workers to work longer hours to keep their jobs and keep up with the rapid production cycle. Additionally, because of the demand fluctuations, employers will hire fewer workers. It is a higher cost to have an excess of workers when demand is low. However, when the demand is high, these workers are forced to work overtime to meet the demand. As a result, employees are working long hours for a low wage.
This leads to workers’ rights violations. For non-state enterprises, Vietnam’s legal minimum wage is set by region. These regions are defined by the government. Region one covers the major cities: Hanoi and Ho Chi Minh City, which has a monthly minimum wage of 4,680,000 VND ($202 USD). Region two, the rural areas around the two cities, has a set minimum wage of 4,160,000 VND ($179 USD) (Nguyen). Although workers make well above the minimum wage, it is not enough to meet the cost of living. For instance, a factory worker, Anh, “said she earned just $400 per month in her ‘boring’ factory job, barely enough to cover her rent and food” (Ha). Based on statistics, the monthly cost of living without rent in Vietnam is 11, 547,297.4 VND ($475 USD) (Cost of living in Vietnam). This proves that the minimum wage set by the government is not enough to fulfill the cost of living without housing. In addition, it is a violation of the International Labour Organization (ILO) standards on workers’ rights, more specifically, the right to fair wages. The ILO’s Minimum Wage Fixing Convention, 1970 (No. 131), advocates for wages that provide workers with an adequate living standard (International Labour Organization 1970). The Vietnamese government’s failure to set an appropriate minimum wage is a violation of workers’ rights. By keeping the minimum wage low, the government captivates foreign investors and gives rise to low-cost labor.
In addition to violations of fair wages rights by FDIs, job insecurity issues are also created. Recently, in 2022, Vietnam had mass layoffs due to an economic slowdown. Demand from major export partners such as the US and EU decreased, with a 60% reduction in orders from Europe and a 30-40% order reduction from the US (M, Torao). This caused foreign enterprises to lay off their workers. It was reported that “7,000 workers were suspended or had to take unpaid leave, and 48,623 were laid off. The majority work for foreign enterprises operating in textile, footwear, and wood processing industry” (M, Torao). This situation shows that workers employed by foreign enterprises are vulnerable to job insecurity. As a result, workers are forced to find work elsewhere. Some looked to sell food on the side of streets or look for local jobs. In an article by the Asian Labour Review, “Dien, a 49 year old worker who lost her job, found temporary work in a local textile shop, where she was paid 280 VND (0.012 USD)” (M, Torao). Although low wages are due to national minimum wage policies, the real issue is the job insecurity faced by workers in FDIs forcing workers into low-paying and unstable alternatives.
In addition to the low wages, excessive working hours are also a violation of workers’ rights. As wages are low and workers are unable to provide for themselves, workers are forced to work overtime. A report stated that “although the average garment worker… earns more than double the country’s minimum wage and well above the International Poverty Line established by the World Bank, that’s still not enough to cover basic necessities, which forces most of them to work over 50 hours of overtime a month” (Van Elven). Sometimes, it is not the workers’ choice to work overtime, but it is the employers who coerce workers to work long hours or risk losing their jobs. For example, when workers in a foreign manufacturing factory in Doojung Vietnam were interviewed about their working hours, some stated that “we were all so exhausted from the job, but whenever somebody asked for a reduction in overtime they were fired” (Labor rights Violations in Vietnam’s Export Manufacturing Sector). This is evidence that garment factories affiliated with FDIs are forcing their workers to work long hours and threatening them with a lack of job security if they fail to comply. By doing so, FDIs are violating ILO’s Hours of Work (Industry) Convention, 1919 (No. 1), which states that workers should not be required to work excessive long hours and should have adequate rest periods (International Labour Organization 1919). In this case, FDIs are violating workers’ rights to reasonable working hours.
Lastly, a lack of bargaining power is another violation of workers’ rights. Unions are formed to negotiate working conditions, wages, and working hours. However, unions are a complex topic in Vietnam with no agenda to solve violations. Most of the time, unions in Vietnam work for the management, so they organize events for workers but don’t solve any issues. Vietnam’s labor laws do not recognize independent trade unions. Instead, there are trade unions that are affiliated with enterprises. An article about Vietnam’s labor code stated that “leaders of the Grassroots Trade Unions remained employees of the enterprise and received wages and benefits from the enterprise” (Le). As a result, trade union leaders do not have incentives to protect the rights of workers. They are unable to act objectively as they are under the influence of management. Workers don’t have representatives and therefore have no bargaining powers for better working conditions.
When independent unions do form, the government suppresses and punishes them. Consequences can include being fired, blacklisted, or imprisoned. In a recent case, in a factory, “labour activists have been subjected to intimidation and harassment after they raised concerns about working conditions at the plants” (Vietnam: UN Experts Concerned by Threats Against Factory Workers and Labour Activists). In another incident, a Vietnamese labor activist, Hanah, was detained and beaten by Vietnamese authorities for attempting to organize a labor strike. She stated in an article, “in the end, they presented paperwork saying I violated administrative procedure and asked me to sign, but I refused to. I am the one who was a victim of illegal arrest. I was dragged from workers, was hit on my face and head, and was put in a chokehold” (Dong). This shows that workers do not have bargaining power due to fear of being physically injured or illegally punished by the authorities. Workers are unable to better their working conditions in FDI factories due to the government’s lack of commitment to advocate for workers’ rights. By controlling trade unions and disallowing independent unions, both enterprises and the government violate workers’ right to collective bargaining. This breaches the ILO’s Freedom of Association and Protection of the Right to Organise Convention, 1948 (No. 87), and the Right to Organise and Collective Bargaining Convention, 1949 (No. 98), protect workers' rights to form and join unions and engage in collective bargaining (International Labour Organization 1948; 1949).
Nike’s Exploitation of Vietnamese Workers
A large apparel corporation that exemplifies violations of almost all workers’ rights is Nike. It claims to help developing economies with economic development by moving underdeveloped industries to a developed one. However, a case study has shown that Nike violated workers’ rights through insufficient living wage, poor treatment of workers, and the refusal to allow monitoring of factories and for labor unions to speak up. For wages, only a small fraction of the final purchase goes to the workers, as “Nike’s own figures show that from a $70 pair of shoes, about $2.75 goes into workers’ hands” (Clancy 6). The rest goes to the corporation, making the business richer, not the workers who are not making enough to provide for themselves. Also, factories that supply Nike are known to have cruel punishments towards their workers. According to the case study, workers were beaten with the sole of a shoe or were forced to kneel with their hands over their heads for twenty-five minutes (Clancy 8). Nike also fails to take responsibility for these poor treatments and has used Vietnam’s weak labor laws to disallow monitoring or independent labor unions to form. Instead, Nike has adopted its own code of conduct for factory conditions. However, the code of conduct was criticized by activists because it is weak in recognizing independent labor unions and monitoring personnel (Clancey 7). This demonstrates the lack of concern for their workers.
Conclusion
Enterprises and management in these factories don’t have the incentive to better-working conditions because they benefit from the low-cost labor and overtime workers as it increases productivity. Governments don’t have an incentive to protect workers’ rights either because they benefit from FDIs. The Vietnamese government fears that if they do protect workers’ rights, it would make Vietnam less attractive to FDIs and investments will start to leave to find cheap labor elsewhere. While FDIs can help with economic development, they also violate workers’ rights. It only makes the government richer while the people suffer the costs. Efforts to protect the workers must come from the state and businesses.
Glossary
Asymmetrical Power Balance: A situation where power is not evenly distributed between parties, often leading to one party dominating or exploiting the other.
Bargaining Power: The ability of workers or groups to negotiate better wages, benefits, and working conditions with employers.
Comparative Advantage: The ability of a country to produce a good or service at a lower opportunity cost than other countries, making it more efficient at producing that good or service.
Economic Slowdown: A period of reduced economic activity, often characterized by lower demand for goods and services, leading to decreased production and employment.
Fast Fashion: A business model that emphasizes the rapid production of high volumes of clothing at low cost to keep up with the latest fashion trends.
Foreign Direct Investment (FDI): Investment made by a company or individual in one country in business interests in another country, often by establishing business operations or acquiring business assets.
Globalization: The process by which businesses or other organizations develop international influence or start operating on an international scale.
Gross Domestic Product (GDP): A measure of the total value of all goods and services produced within a country’s borders over a specific period, usually annually or quarterly.
Labor Exploitation: The unethical or illegal treatment of workers, often involving underpayment, poor working conditions, and abuse.
Labor Rights: The legal rights and protections granted to workers, including fair wages, safe working conditions, and the right to form and join unions.
Market Diversification: The strategy of expanding into new markets or sectors to spread risk and increase opportunities for business growth.
Trade Liberalization: The process of reducing or eliminating trade barriers, such as tariffs and quotas, to promote international trade.
Trade Unions: Organizations formed by workers to protect their rights and interests, and negotiate working conditions, wages, and hours with employers.