Human Resouce practices in Vietnam

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Industry Issue Report
  Human Resource Management
     Practices in Vietnam

   Nguyen Thi Truc Ly s3192817
     Lecturer: Landon Carnie

      Submission date: 20 Dec 2010

A. Introduction

In response to globalization which occurs in the early twentieth century, Vietnam has undergone

some major changes in economy, politics, society and education. After Doi Moi reform taking

place in 1986, Vietnamese economy shifted from a centrally-plan market into a hybrid one with

the coexist between state-owned and multinational companies (Vo 2009).            This globally-

integrated market has changed the business landscape of Vietnam significantly. The competition

among companies becomes more intensified. In order to survive under great pressure of the

completion, companies operating in Vietnam, regardless of ownership types or organizational

structures, are searching and creating a sound competitive advantage (Thang & Quang 2005a).

As classified as an economy in the transitional stage (Zhu 2002), one way to create a competitive

edge in Vietnam is to invest in human capital. The implementation of effective human resource

management (HRM) practices ensures the survival and success of a business (Thang & Quang

2005b). With an emphasis on the current HRM systems and practices in Vietnam, this report will

review literature on HRM in Vietnam. Examples of the applications of HRM philosophy and

practices will be discussed latter. Finally, some effective HRM practices will be recommended at

the end of the report.

B. Economic transition and management changes

Doi Moi reform in 1986 has transformed Vietnamese economy from the traditionally socialist

economy to a market oriented one (Thang & Quang 2005b). According to the recent Labor

Report of 2009 (GSO 2009), Vietnam has witnessed a sharp increase in the number of local

private enterprises (LPCs) and foreign-invested companies (FICs), compared to state-owned

enterprises (SOEs).
FICs have the highest increase of 3.0%, which is followed the increase of 2% of LPCs from 2007

to 2009, compared to the 5% decrease in SOEs (GSO 2009).

The development among economic sectors in Vietnam indicates the national economy is going

through a transition, in which the government aims to attract foreign capital and invest in

knowledge economy (Collins, Zhu & Warner 2009). Challenges from joining World Trade

Organization have required enterprises and their managers in to adapt to the changing

environment by adopting new model of HRM in Vietnam (Collins 2009). The old personnel

management system and the model of HR practice based on concept of a socialist tradition,

including lifetime employment, uniformity between industries and state-owned enterprises, have

been proven to be obsolete and undermine the competitive advantage of businesses in Vietnam

(Rowley & Benson 2002).

C. HRM philosophy in Vietnam

HR department in Vietnam are often called personnel and administration departments. HR

people‟s major responsibility is still about policy implementation. They do not have much

influence over the strategic decision-making process within organization. Their jobs are more on

administrative activities than on organizational management (Vo 2009, p.15). Research on the

transformation of HR practices under economic suggests three stages (Ding, Goodall & Warner

2000). The first is that HR is not paid appropriate attention to by enterprises. Second, during the

transitional stage, there is a collision between the old and new form of people management. And,

lastly, enterprise attempt to create a new HRM perception among top-managers. It is

recommended that in Vietnam, the old and new model of HRM should be acknowledged and

taken into consideration simultaneously and inclusively (Ding, Goodall & Warner 2000).
HRM practices are also affected by the ownership types of a company. Zhu‟s (2008)

found that FICs often use advanced technology and international standards of HRM

effectively than SOEs and LPCs. Moreover, the high-tech sector, large size organization

and export-oriented business positively affect the adoption of HRM (Zhu 2008). In

addition to current literature on HRM and ownership type, according to (Thang & Quang

2005b), it was found that FICs have developed HR practices more than SOEs. In contrast,

LPCs are not receptive to adopting HRM than SOEs. The most recent research of Zhu,

Collins, Webber and Benson (2008) showed there is a connection between governments‟

and enterprises‟ interests during the economic transition process in Vietnam.

The interaction between government and enterprises is an indirect negotiation and compromise

of conflicting interests (Collins, Zhu & Warner 2009). During this process, HRM functions tend

to be designed to fit with government‟s principle of socialism, stressing on harmony at

workplace (Zhu, Warner &Rowley 2007). It is also noticed that some policies are purposely

unclear. Thus, it is recommended for enterprises to either search for loopholes in laws or avoid

policies implementation to serve the interests. For big cities, like Hochiminh and Hanoi, new

HRM model and approaches could be experimented (Collin, Zhu & Warner 2009). This is made

possible because of the indirect negotiation over a policy between the state and enterprise. The

state creates a policy as a trial and leaves enough ambiguity for enterprise to deal with it. Then

the state observes and adjusts the policy to best suit the interest of both the state and the

According to (Martin & Bamber 2005), there are two factors influencing the function of HR

practices in Vietnam. Companies should consider the “strategic choice” and “political economy”

approach when planning and implementing HRM practices. The strategic choice focuses on the

link between HR practice and organizational business strategies, the importance role of

management, and increased autonomy of employees (Dowling & Welch 2004). On the other

hand, the political economy approach stresses on the integration of the business, the government

and the bigger picture of social and economic environment, employment, industry relations of an

enterprise (Martin & Bamber 2005, p. 381). This approach supports the findings of Collin, Zhu

and Warner (2009) that for a transitional economy like Vietnam, HRM reform are the

combination of both “strategic choice” and “political economy”. In other words, HRM changes

is the combination of the old and new models, which from both „bottom-up‟ and ‟top-down‟ in

the harmony of „experiment‟ and „adjustment‟ of the state and the enterprise.

D. Specific HRM practices in Vietnam

1. Recruitment and Selection (R&D)

According to Anne Ngoc Vo (2009) the selection process in SOEs is much simpler than that of

multinational companies (MCNs). This is due to the preference of SOEs for candidates with

education qualifications and harmonious characters (Vo 2009, p.60). In contrast, MNCs are

seeking for job applicants who favor more demanding, competitive and permanent jobs. Thus,

MNCs adopt many R&D techniques, such as: talent scouting through seminars, competitive

events, management trainee and internship programs, as well as written examinations and

psychometric tests (Nguyen & Robinson 2010). However, it is reported that employee referrals

based on personal contacts is still the popular method of recruitments in Vietnam, especially in
SOEs (Vo 2009). The R&D process has an impact on job performance of employees since this is

the first stage for developing human asset for a company (Thang & Quang 2005b).

Currently, the management trainee and internship program has been in the focus of some

foreign-invested companies in response to a proactive and effective recruitment stage. Fast-

consuming-goods corporations like Friesland, Pepsico, Unilever; insurance companies like

ManuLife, Prudential and banking services like HSBC have implemented management trainee

program to select appropriate talents in the shortage of well-trained professional in Vietnamese

labor market.

2. Performance Management (PM)

Unlike the traditional system of politically-oriented bureaucratic assessment, a new PM system

has been in use recently both in SOEs and MNCs, according to Collins (2009). The new PM

system makes an attempt to link performance to compensation, focusing on long-term goals and

personal achievements. There is a localization of PM system in MNCs regarding employee

evaluation and appraisal method. Various PM tools are utilized, for example: Balanced

Scorecard, SMART objectives, 360-degree feedback.

3. Compensation and Benefits – The reward system

As Vietnamese economy shifts from centrally-planned system to multi-sector one, the reward

mechanism also changes into a new dual salary system (Vo 2009, p.108). This new system

includes “hard” salary following government rule and “soft” salary based on individual

performance in a firm. Since the salary system is complex, an increase in salary is found to have

less impact on employee motivation, especially in SOEs (Collins 2009). Moreover, in SOEs,

salaries are not enough for employees to meet the average living standard. Consequently, the
„brain drain‟ phenomena have illustrated the shift of talents from SOEs into MNCs, where the

minimum wage level is twice that of domestic companies. Applying the HRM principle of

„experiment‟ and „adjustment‟ in Vietnam context, many MCNs are reported to seek for

loopholes in laws to develop ways of reducing labor costs, for example: the „70/30‟ salary

packages, the extensive use of temporary workers and the use of simple salary structure (Vo

2009, p.109). According to King-Kauanui, Ngoc and Ashley-Cotleur (2006), it is encouraged for

small and medium sized local private companies to pay attention to incentive compensation in

HRM system, and then implement training and performance appraisal.

4. Training and Development (T&D)

The education and training system in Vietnam has not met the demand for well-trained and

skilled workers of the market-oriented economy (Vietnamnews 2010). Thus, training and

development within companies are necessary to upgrade employee performance and maintain the

organization effectiveness. SOEs and small-or-medium local private enterprises often outsource

T&D practices (Thang & Quang 2005b) because of limited financial resources, lack of training

expertise and facilities (Vo 2009, p.128). In contrast, T&D of local employees is critical to the

success of MNCs in Vietnam (Collins 2009). Training is conducted more often in MNCs than in

SOEs and there is a various use of up-to-date technologically-driven learning method in MNCs.

The current issue in T&D in Vietnam is the conflict between the T&D intensification for local

employees and the risk of low return on human investment for multinational companies.

However, it is still highly recommended for T&D intensification to expect for higher return on

investment (Thang & Quang 2005b)

5. Industrial Relations
In Vietnamese context, Trade Union has a major role in economic structure because of its

socialist nature in protecting the benefits of working class from capitalism (Warner 2008). Anne

Ngoc Vo (2009) found that Trade Union plays a supporting role in management of both SOEs

and MNCs. Activities of trade Union are often related to holiday arrangement, social event

organization, and employee encouragement of production quota fulfillment.


It is recommended for enterprises both state-owned and multinational companies to invest in

talented staff, said by Mr. Andreas Dernbach, managing partner at HR Solutions Vietnam

Limited Company (Vietnamnews 2010). The effect of HR value should be recognized and

supported by top-manager of an organization. Under the pressure of competition, human capital

has become a critical success factor which brings competitive edge to companies in Vietnam

(Quang & Thang 2005b).

Because of the deep-rooted cultural behaviors, Vietnamese employees are claimed to rarely clear

self-express in case of problems and conflicts (Kaminz 2006, Bangkok Post 2010). Functions of

HRM or personnel department should be focusing on create organizational values and culture to

invite and create bonds with employees in long time. Building corporate culture ensures the unity

of corporation (Kamoche 2001). Employee communication should be developed explicit and

often to create a better environment for professional and personal growth, for example:

Worker/Supervisor Meeting, Suggestion Box or Feedback bulletin board, labor management

council (HR Solution VN 2010, p.33). This will makes employees more committed to job than

merely giving them training (HR Solution VN 2010).
For recruitment stage, it should be better for enterprises to combine multiple methods of

proactively selecting qualified job applicants. There should be a combination of effective

methods (e.g.: employee referrals, business networking), emerging methods (e.g.: web 2.0,

overseas students, alumni group) and talent scouting (e.g.: seminars, competitive events,

management trainee and internship program)

The war for talent in Vietnam has been heated up (Vietnamnews 2010); therefore effective HRM

systems and practices within an organization are necessary to retain talent. Enterprises are

encourage to have high reward system and frequent performance appraisal, in which employee

find more motivation and trust as their works are valued by top-managers. Training is claimed to

be a useful investment and motivational tool to upgrade the performance of local employees

(Bangkok Post 2010). In long term, training local employees yield good return regarding high-

skilled and Western-business oriented perception among employees. This, in turn, creates a sense

of loyalty and avoids job hopping or increasing jumping-ship practice in Vietnam

(Vietnammarkets 2009).

Moreover, it is highly recommended for companies to acknowledge the role of Trade Union and

build a good relationship with them in order to effectively operate in socialist business

environment like Vietnam (HR Solutions VN 2010).

Bangkok Post 2010, „Vietnam: Opportunities and Challenges for HR Managers‟, Bangkok Post,
viewed on 15 Dec 2010,

Collins, NT 2009, Economic Reform and Employment Relations in Vietnam, Routledge Studies
in the Growth Economies of Asia, Routledge, New York, US.

Ding, DZ, Goodall, K & Warner, M 2000, The end of the “iron rice-bowl”: Whither Chinese
human resource management?, International Journal of Human Resource Management, vol. 11,
pp. 217 – 236.

Dowling, P, & Welch, E 2004, International human resource management: Managing people in
a multinational context, Cincinnati, US.

GSO 2009, The Report of Labour and Social Trends in Vietnam 2009/10, General Statistic
Office, viewed on 15 Dec 2010,

HR Solution Vietnam N 2010, HR Survival Guide for Foreign Managers in Vietnam, HR
Solutions Vietnam, viewed on 15 Dec 2010,

Kaminz, A 2006, In Vietnam no one wants to be the squeaky wheel, Financial Times, viewed on
15 Dec 2010,

Kamoche, K 2001, Human resource in Vietnam: the global challenge, Thunderbird International
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King-Kauanui, S, Ngoc, SD & Ashley-Cotleur, C 2006, Impact of Human Resource
Management: Small-Medium-Enterprise (SME) Performance in Vietnam, Journal of
Developmental Entrepreneurship, vol. 11, pp. 79 – 95.

Martin, R, & Bamber, J 2005, International differences in employment relations: What are the
relative merits of explanation in terms of strategic choice or political economy,? Paper presented
at the 19th Conference of the Association of Industrial Relations Academics of Australia and
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Rowley, C & Benson, J 2002, Convergence and divergence in Asian human resource
management, California Management Review, vol. 44, pp. 90 – 109.

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management practices in Vietnam, International Journal of Human Resource Management, vol.
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Vietnammarkets 2009, Temporary imports for re-export: Foreign partners not jumping ship,
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Quang & Thang 2004 in #6

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