Vietnam’s labor costs are rising. Hence, international apparel makers are slowing down and in some cases, completely halting expansion in the country. Some are now focusing on Indonesia, which is expected to become a significant production base in three to five years.

Manufacturers are worried the US-China trade war will further push up labor costs since tech giants are shifting production out of China to avoid US tariffs. Vietnam has traditionally attracted foreign manufacturers due to its low-cost labor and availability of natural resources but its low cost appeal is waning. Its minimum wage grew at an average of 8.8 per cent a year between 2015 and 2019, making it one of three countries with the highest minimum wage growth in southeast Asia. This, together with robust economic growth and the rising costs of living risks exacerbating regional wealth inequality, has emboldened workers to demand for higher minimum wages. Vietnam raised its minimum wages by an average of 5.3 per cent last January. Along with rising costs, one of Vietnam’s weaknesses is the lack of skilled workers. It is far behind China, Singapore, Malaysia, and Thailand in this aspect at a time when developing a highly skilled workforce is critical for attracting FDI into value-added industries.