The US’ Watson Wyatt Worldwide (WW) recently acquired Smart Human Resource Vietnam Company, a premier human resources consulting firm in Viet Nam.

Andrew Heard, WW’s Asean regional managing director tells Viet Nam Investment Review’s Hoang Mai about Vietnamese labour market trends in a tough 2009.

Why did WW choose buying an established Vietnamese firm rather than setting up a local subsidiary, with the Vietnamese government allowing wholly foreign-owned entities to provide human resource services as of its World Trade Organization (WTO) commitments?

As part of our global growth strategy, we have been exercising “focused acquisition” around the world. This acquisition in Viet Nam is in line with our strategy. Smart HR is a premier human resources consulting services firm in Viet Nam and a leader in its field. The extensive local experience of the Smart HR team and its track record of success in working with international and local companies are truly impressive. Its culture and values are also a close fit to WW’s commitment to service excellence and developing strong client relationships.

Could you reveal the value of WW’s acquisition of Smart HR? Are there any reshuffles in the organisation and business operations as of January 1, 2009?

The terms of the acquisition are sensitive information. As Smart HR transitions to being Watson Wyatt Vietnam, there will be changes in the structuring of its teams, services and solutions to mirror that of WW. The firm’s global services include managing the cost and effectiveness of employee benefit programmes, developing attraction and retention and reward strategies, providing strategic and financial advice to insurance and financial services companies and delivering related technology, outsourcing and data services.

Under pressure from the global financial crisis, foreign-invested enterprises in Vietnam will have to ensure that the cost of attracting, retaining and motivating people has to be justified by financial capacity and business results. WW has been helping clients globally and Smart HR team locally, on this very issue.

With the government’s move to open-up employment and human resource services to foreign investors, in what way do you think the Vietnamese labour market will be upgraded to a more competitive level? Will Vietnamese human resource service firms face greater difficulties in competing with foreign firms?

Over the last few years, we see a maturing of the Vietnamese labour market in terms of salary structuring, employment relations, performance management and competency training. As for the cost of human resources, the cap on social insurance has reduced it and the new personal income tax law in 2009 will also help. However, the high inflation rate of 2008 and the managerial talent shortage will continuously drive salaries higher. I am very optimistic of the Vietnamese labour market’s competitive level compared to other countries in the ASEAN region.

The hardworking and keen-to-learn Vietnamese have great potential to be competitive if the vocational education is focused on the market needs and companies are encouraged to upgrade their human capital through professional competency training and development. This will certainly enhance their competitive level. There is a great market demand for human resource consulting services in Vietnam.

Will Vietnam’s competitive labour costs remain the nation’s comparative advantage to compete regional countries in foreign direct investment attraction?

As I mentioned earlier, Viet Nam is facing high inflation, which is running at around 23-25%. As a result, the movement of salaries has been ignificant. In our last WW Total Rewards Survey, the results show that market practice of salary increases was at 15-18%. Comparing it to India at 13% and China at 9%, it is a great concern. Companies in Viet Nam will be challenged to ensure that employees are fully engaged and productive to optimise their increasing investments in employee compensation in order to ensure that businesses remain competitive.

Do you think Vietnamese workers’ salaries at state-owned and private sectors truly reflect market labour costs?

Companies in Viet Nam whether they are state-owned or private enterprises including foreign-invested enterprises are all grappling with high inflation and high wage increases compared to most of the region. Compared to countries such as Singapore, Malaysia, India, Pakistan and the Philippines, Viet Nam does not have the advantage of English language proficiency.

Further concern really falls on the unjustified balance between the cost of compensation versus the competency level and readiness of labour in Viet Nam. This is mainly due to the high staff turnover rate and managerial talent shortage.

This situation was further worsened by the rapid economic growth after Viet Nam entered the WTO in 2007. The staff turnover rate in Vietnam is close to 17%, the highest since the country opened to foreign investors. The high turnover rate continues to be an issue for companies operating in Vietnam. (Dau Tu)