Labor costs in Vietnam have risen 4.5 times... 92% of companies entering Korea say, “We will not withdraw”

Despite the rising labor costs and regulatory burden in Vietnam, most Korean companies that have entered the local market have shown intent to maintain business.

Although it is judged that there are still advantages such as cost advantages compared to other countries, there is also advice that the operating method should be improved to suit the changed business environment.

According to the report 'Changes in the business environment and response tasks for Korean companies operating in Vietnam' published by the International Trade Research Institute of the Korea International Trade Association on the 8th, Vietnam's monthly minimum wage increased 4.5 times from $45.4 in 2010 to $205.3 in 2024.

The annual average rose by 11.4%, recording the highest rate of increase among major Asian countries.

In the past, Vietnam was evaluated as a production base based on low labor costs, but the business environment is changing.

In a survey conducted by the International Trade Association on 113 Korean companies operating in Vietnam from July 27 to September 16, the companies cited 'government regulations' (67.3%), 'increasing labor costs' (62.8%), and 'licensing, customs clearance, and quarantine procedures' (54.0%) as major management difficulties (combined rankings 1 to 3).

However, 92.0% of companies operating in Vietnam said they had no intention of withdrawing from Vietnam.

As for the reason for staying, 87.5% of respondents cited 'cost advantage compared to other countries' as a result of rankings 1 to 3.

The report analyzed that it was the result of comprehensive consideration of competitiveness, including not only labor costs, but also productivity, manpower security, and procurement and logistics conditions.

Companies most frequently cited ‘domestic sales’ (54.9%) as their purpose for entering Vietnam (combined 1st to 3rd priorities), followed by ‘ASEAN base’ (50.4%) and ‘export to third countries’ (38.9%).

Companies evaluated the future prospects of the Vietnamese market positively. 59.3% of companies expected business improvement over the next 3 to 5 years, significantly exceeding the forecast for worsening (12.4%).

71.7% of respondents predicted that Vietnam will continue to serve as a key overseas base.

However, in the textile, clothing, and footwear industries, the outlook for deterioration accounted for 53.8%, showing differences in business conditions depending on the industry.

The report advised that in order to respond to Vietnam's changed business environment, companies entering the market need to inspect the cost and profit contribution of each function, such as production, procurement, logistics, and sales, and improve their operating methods.

Lim Yun-ho, a researcher at the Korea International Trade Association, said, "The sustainability of the Vietnamese business depends on leveraging the advantages of the existing location while increasing operational capabilities in line with changing conditions. Rather than maintaining the business solely based on past cost advantages or expectations of future growth, we must continuously inspect productivity, local demand, response to regulations, and organizational operations."