Hanoi and Haiphong are two main cities in north Vietnam with significant potentials for development and concentrates large labor force with high level of education.
THE QUEST FOR SKILLED LABOR FOR SUSTAINABLE GROWTH IN VIETNAM by Le Tien Truong A research study submitted in partial fulfillment of the requirements for the degree of Master of Business Administration. Examination Committee Dr. Truong Quang (Chairman) Dr. Fredric. W. Swierczek Dr. Hans Stoessel Nationality Vietnamese Previous Degree Bachelor of Mechanical engineering Hanoi University of Technology Hanoi, Vietnam Scholarship Donor Government of Switzerland Asian Institute of Technology School of Management Bangkok, Thailand April 1997 Chapter 1 Introduction 1. Rationale The renovation policy (doi moi), starting in 1986, has had a profound and widespread impact on all aspects of the socio- economic life of Vietnam. The country has maintained an annual GDP growth rate of over 8% since 1992, and is moving towards achieving the goal of doubling GDP per capita of about US$200 to day by the end of this decade. Increasing industrial production has brought a period of recession to an end and has created steady momentum for further growth. Agricultural production has experienced high growth rates, which in turn has ensured food sufficiency and significant surplus for export. External economic relations has been stronger. Society has becomes more dynamic, and started enjoying improved living conditions. Activities in family planning and population have made considerable progress. Public health has received increased attention to better serves the interest of the general public. However, to sustain this rate of growth, Vietnam is confronting at the same time, with numerous constraints and difficulties due to serious shortages of a kind of skilled labor that is able to handle all types of work required in developed industries (Truong Quang, 1996). One of the most critical difficulties rests in vocational training field in which trained labor accounts only for a low percentage of the Vietnamese labor force and total population, 10% and 5.53% respectively. In general, the quality of education and training is still low with regards to scientific knowledge, managerial skills and creative thinking (Truong Quang, 1996). There is a serious mismatch between the quantity of educated people and the quality required for the country development. This situation applies equally both for the formal education as well as vocational training of the country. In particular relatively large number of vocational school graduates are unemployed, while skilled labor is highly needed, and in short of supply. What are the causes of this paradoxical problem? Are the skills acquired at school of no use to the society? Is the apparatus of training system inefficiency? So far, there has been no research undertaken to explain the situation and to eventually provide a solution for these problems. It remains to be a difficult and challenging task for the functions concerned to deal with this problem. 2. Statement of the problem How to assessment the demand of skilled labor and how to solve the gap between demand and supply of skilled labor for sustainable economic growth in Vietnam. 3. Objectives of the Study 2 The objectives of the study are: 3.1. To assess the demand of skilled labor in Vietnam 3.2. To identify the gap between supply and demand of labor. 3.3. To identify the factors related to the vocational training curriculum that affects the quality, skills, knowledge, and abilities of participants. 3.4. To make some recommendations to improve the quality of participant in order to meet the market demand. 4. Scope and Limitations of the Study Hanoi and Haiphong are two main cities in north Vietnam with significant potentials for development and concentrates large labor force with high level of education. This region is considered the economic hub of the northern part of Vietnam, with a high concentration many local and foreign socio-economic projects. Therefore, the requirement of labor is very large, especially of skilled, and specialized type of labor. Owing to the time constraint, the study was focused only on the aspect of skilled labor in Vietnam. In order to assess quality of participants from vocational schools in Vietnam, interviews were mainly conducted in Hanoi, Haiphong. The scope of the interviews in pratically limited to 2 Education and Training Departments of the MOET, and vocational schools located in the region, and selected companies that agreed to participate in the project. The interviews were often conducted with the Human Resource Department and other heads of departments. 5. Research Frame work The frame work is developed in three stages: See flow chart in later page. 6. Research methodology Data are collected by direct interviews and secondary sources. • Guideline for direct interview. 1. With the Education and Training Departments. - Human resource development policy - The effectiveness of education and training management . 2. With the Vocational Schools - Number of students participants per year. - Evaluated the quality of training, and curriculum of training. 3. With the companies: 3 - The requirement of labor (type, skills, etc .). - Number of labor required from now to 2000 - Evaluation the quality of skilled labor. The number of participants graduated from vocational schools (type,%) - The need for re-training - The need for change in vocational school to be more adaptation to the market requirement • A three - phases methodology has been used as follows: - Phase one: Collection of secondary data about the overall situation of education system. The policies of human resource development, the quality of vocational training. The source are MOET, official reports, newspapers, and magazines. - Phase two: Interviews at the MOET, vocational schools and companies. - Phase three: Analysis of data and recommendations. 7. Organization of the Study - Chapter 1: Introduction - Chapter 2: Literature Review - Chapter 3: Human Resource Development Strategy in Vietnam - Chapter 4: Development in education and training and problems to be addressed - Chapter 5: The System of Middle Technical Schools and Vocational Schools in Vietnam - Chapter 6: Findings and Discussion of the Survey. - Chapter 7: Recommendations. 4 Chapter 2 Literature Review 1. The Contribution of Education and Training to Economic Growth The concept that investment in human capital promotes economic growth actually dates back to the time of Adam Smith and the early classical economists, who emphasized the importance of investing in human skills. In the 1960s, Schultz (1961) and Denison (1962) showed that education contributes directly to the growth of national income by improving the skills and productive capacities of the labor force. This important finding led to a flood of studies on the economic value of investment in education. Research in this area slowed in the 1970s, however, because of a lack of economic growth and a certain ambivalence about the role of education in development. Recently, the World Bank has expressed renewed interest in human development, particularly education, as is reflected in its 1980 World Development Report. The early attempts to measure the contribution of education to economic growth were based either on the growth accounting approach, used by Denison and others, or on the rate of return to human capital, an approach adopted by Schultz and others. Growth accounting is based on the concept of an aggregate production function, which links output (Y) to the input of physical capital (K) and labor (L). The simple form of production function, assumed in many of these studies, is a linearly homogenous production function: Y= F(K,L). If the economic growth is due entirely to increases in physical capital and labor , then it should be possible to desegregate the rate of growth of output into its capital and labor components. In this respect, Denison (1962) calculated that between 1930 and 1960, for example, almost a quarter (23 percent) of the rate of growth output in the United States was due to the increased education of the labor force. Schultz’s (1963) method of measuring the contribution of education to economic growth (that is, in terms of the rate of return to human capital, which he then compared with the rate of return to physical capital) led him to suggest, as Denison had, that a substantial proportion of the rate of growth of output in the United States was due to investment in education. This method has also been used to estimate the contribution of education to economic growth in developing countries. The overall conclusion is clear: increase education of the labor force appears to explain a substantial part of the grow of output in both developed and developing countries since about 1950. However, these estimates rest on a wide variety of theoretical assumptions that have been challenged. In particular, it is assumed that the earning of different group of workers is a measure of their contribution to output; that the higher earning of educated workers is a measure of their increased productivity, and therefore of their contribution to economic growth: and that the relationship between inputs and output is a fairly simple one, which can be analyzed in terms of aggregate production function. Recent attempts to use econometric techniques to relate inputs to output, however, have again demonstrated the link between education and growth of output. Recent research for the World bank, for example, provides evidence of the link between various aspects of human resource development and economic growth. One such study (Hicks, 1980) examined 5 the relationship between growth and literacy, as a measure of educational development, a life expectancy in 83 developing countries during the period 1960-1977 and found that the 12 developing countries with the faster growth rate had well above average levels of literacy and life expectancy. According to these results, not only do literacy levels rise with the level of national income, but these 12 countries have higher levels of literacy and life of expectancy than would be predicted for countries of that income level on the basis of the regression between literacy and per capital income. In the case of Korea and Thailand, the considerable difference between actual and “ expected” literacy levels suggests that rapidly growing countries have well developed human resources. It does not, of course, prove the opposite: that countries with high levels of human resource development will thereby achieve faster economic growth. Further analysis by Hicks confirms the existence of a relationship between economic growth and human resource development, as measured by literacy and life expectancy. Of course correlation does not prove causation. Its objection automatically weakens any argument that uses regression analysis to prove that educational development causes economic growth. To allow for he fact that education, and other indicators of human resource development, are both the result of an cause of economic development, Wheeler (1980) devised a simultaneous model, which apply to data for 88 developing countries. This simultaneous model, takes into accent the interactions, over time, between growth and human resource development., and tries to separate cause and effect. Test with is model suggests that education, health , and nuitrion contributed to growth of output not only directly, but also indirectly, by increasing the rate of investment and lowering the birth rate. Wheeler found that on the average an increase in the literacy rate from 20 to 30 percent causes national income (GDP) to increase by 8-16 percent. After examining data for 66 developing countries in a similar analysis, Marris (1982) concluded not only that education strongly affects economic growth, but that general investment has less effect on growth rates when it is not supported by educational investment. Other research, too, has demonstrated that investment in education complements investment in physical capital. For example, World Bank research on the links between education and the productivity of farmer (Lau 1982) has shown that investment in improved seeds, irrigation, and fertilizes is more productive, in terms of increased crop yields, when farmers have four years of primary education rather than none. Thus it appears that previous attempts to measure the contribution of education to economic growth may have underestimated the effects of education by ignoring its indirect effects. There are other grounds, too, for thinking that previous attempts to measure the economic contribution of education may have underestimated the effect of education on growth. There is ample evidence that education makes both a direct an indirect contribution to economic growth, but the chicken-and-egg relationship between education and growth can never be fully established. Nonetheless, strong support can be found for the notion that the most likely causal link is from education to economic growth, rather than the other way around. The question of whether it is more profitable to invest in men or machines cannot be answered simply. Some evidence (see figure 2-1) suggest that in developing countries the average of return to human capital is higher than the rate of return to physical capital, whereas in more developed countries, the reverse is true. It is also true, however, as already been pointed out, that investment in education often complements investment in physical capital and makes it more productive. 6 15 Annual income per capita. Source: Psacharoploulos (1973) Figure 2-1. The Social Rate of Return to Physical and Human Capital, by Level of Economic Development Although none of this research shows which type or levels of education are likely to have the greatest impact on productivity or growth, it does show that spending on education should be regarded as productive investment, rather than pure consumption. If governments wish to maximize growth, however they need to know how educational investment compares with other forms of investment- particularly investment in physical capital and social infrastructure - and which forms educational investment offer the highest returns. In other words, educational investment must be evaluated in terms of opportunity costs and the relationship between cost and expected benefits. 2. Vocational training Vocational training means training which impacts the knowledge and skills necessary for a vocation.(D.Lockwood,1986) In the recommendation concerning vocational training issued in 1962, the ILO used ‘vocational training’ in very broad context, that is, vocational training as preparation or training for employments or promotion in all fields of economic activity and , as training not for its own sake, but one which takes into sufficient consideration employment opportunities as the means to maximum use and development of human resources for both personal and social benefit. The contents of vocational training should not overlap of formal education, although the two are conducted in close relation with one another. Formal education gives priority to basic knowledge and understanding and also to the formation of character. Vocational training, however attaches importance to the teaching of technical skills and knowledge required for a specific vocation, through actual experience. It is of course important that these are achieved through a systematic and organized process of training. Vocational training may have some points in common with vocational education. To avoid confusion between the two, their differences in purpose and procedure should be taken into consideration while keeping in mind the close relationship between them. 7 10 5 <$1,000 > $1,000 Physical capital Human capital 3. Definitions of terms 3.1. Skill Skill is the transfer of knowledge or perception into action. Skill is practical knowledge combine with ability. A skill can be improved through practice or training.(Lockwood,1986) 3.2 Need and Want The first step in any training needs analysis is to differentiate between training wants and training needs.(D.Lockwood, 1986) Nowack (1991) discriminates theses two concepts as follows: - A true training need exists when specific job tasks or behaviors are important and an employee’s proficiency in them is low. - A training want may arise when specific job tasks or behaviors are not important and an employee’s proficiency in them is low. Training need assessment aims at uncovering an employee’s true training needs and weeding out training wants. Employees often want training in specific areas that are irrelevant to the job or inconsistent with organizational objectives. Four definition of needs Brinkerhoff (1986) extracts four definitions of need from Stufflebeam’s study (Stufflebeam, 1977) and indicates that deferent organization contexts an situations will call to different approaches of needs, and very often, any situation will benefit from multiple needs analysis perspective. The four definitions are as follows: 1. Discrepancy : This is defined different between an ideal normative, or expected level of performance, and an actual level of performance. Use of this definition allows for measurable, precise, and specific need identification, but use of discrepancy definition requires measurability and previously established expectation level. 2. Democratic : A “ democratic” need, what most people prefer, select or otherwise “ vote” for is determined by majority rule. Democratic need definition can confuse wants with needs. Nevertheless, this definition builds consensus. 3. Diagnostic: Diagnostic needs are defined through research and casual analysis. When A contribute to the achievement of B, then A is needed for B. This definition can help discover true needs. Furthermore, it introduces the concept of meet and unmet needs. For example, we cannot completely delete stress while working. The need is, then, to maintain the current low stress level. This definition allows “ strength” analysis and avoids the trap of need analysis that searches only for deficits 4. Analytic : Analytic needs are discovered by intuition, insight expert consideration, or even enlightenment. Analytic needs lead to new level of performance and even allow assessment to virtuosity because they are not tied by definition to previously set standards, majority opinion, 8 or established knowledge. A weakness of this definition is, however, its dependence on individual (or small group) expertise. In reality, surveys of need use the work “ need” as an expression of preference and demand and not an observable discrepancy in performance produced by lack of skill (Swierczek, 1985). But from an organization perspective, the HRD function should operate and be guide by policy that encourage the use of all needs definition, and does not preclude the consideration of any of them. 3.3.Need assessment for training Why need assessment? Fierce competition among firms is forcing managers into increasingly complex roles. They have the burgeoning responsibility for effectiveness and efficiency, sales and research, profits and growth, competition, government regulations and future markets and services. The complicated demands being placed on managers have propelled managerial needs assessment to the forefront of organizational profiles.(Bierkholff,1986) Many companies allocate large sums of money to training and development. IBM, for example, spends more than one half billion dollars per year educating and training workers. Some money goes to train 10,000 workers for new jobs, other expenditures update technical and scientific workers. Still other outlays prepare workers and managers for future challenges. If IBM is to get maximum benefit for this staggering expenditure, then efforts must concentrate on the people and the situations that benefit the most. To decide what training and development is needed. IBM’s trainers first assess organizational and individual needs. (Davis, 1981). Need assessment diagnoses problem and future challenges to be met through training and development. For example, changes in external environment may present an organization with new challenges. To respond effectively, employees may need training to deal with these changes. Ludeman (1991), tried to measure skill for identifying training need. In addition to improving productivity, a well developed skills assessment program can help measure and demonstrate the training need. There is only one concrete way to know, if the training programs are actually making a difference pre- and post - management of the skills you are teaching, say Nathan and Stanleigh (1991). they recommend comparing base line performance data with post- training performance data to know, whether a training program really improved employee performance. Parry (1990), emphasizes the importance of providing trainers with feedback about learners who use job skills. Without feedback it is impossible to know how to revise training programs for maximum skill development. Customized skills assessments meet training needs. Questions can be developed so that each category of skills aligns with a training module. The pre- training feedback is provided as part of the program and helps focus employees on those are they need to improve. Six months later, a post training assessment let them know that their efforts to improve worked. 9 Knowing ahead of time, that they will receive post- training feedback increases employees’ motivation to implement their development plans and put to work the new skills they learned in the training program. Cohen (1990), found a significant correlation between learning and goal setting in the training process. Pre- training assessment make it easy for participants to see the areas in which they need to improve the help them set appropriate goals. Ludeman (1991) uses five assessment stages for identifying training need based on customized skills. He tries to measure skill and according to the rating criteria, skill assessments accelerate people’s learning, job performance and professional development by offering reliable feedback necessary for continuous improvement in addition to improving productivity. A well- developed skills assessment program can help you measure and demonstrate the worth of your human resource department. People must know, what are most critical to their performance and how much, if at all, they need to improve. Customized skills assessment is used in today’s computer technology to meet the need for performance that could be more aptly named “continuos people’s improvement” Mirabile (1991) emphasized a simple approach to skill assessment for training need. Employees skills assessment can identify the logical, relevant developmental needs of a company’s work force. No single approach will work in all situations for all firms. But some kinds of skills assessments is integral to the survival of every organization. Various developmental resources exist. Each attempts to identify employee’s primary developmental requirements in the context of their organizations. Ultimately, these resources may be reduced to set of tools and processes for gathering specific types of information. Developing the method of assessment.(Swierczek, 1985) Answers to the following questions can provide the guidelines for the managerial needs assessment strategy. These question can be used whether the assessment is conducted internally or by an external consultant. • What mechanisms are currently in place to disclose business problems? • Does documentation exist from previous need’s assessments? • What department within the organization will be involved in the needs’ assessment process? • Which employees will be involved in the process? • What budgeted amount is available to pay for costs incurred during the needs assessment process? • What time frame does the needs’ assessments have to be conducted within? • What is the relationship of needs’ assessments to the organization’s overall strategic plans and the strategic plans of its departments? After all these strategic questions have been answered, the information can be translated into a formal needs’ assessment plan: (1) Establishing the goals and objectives of the needs’ assessment; (2) Identify specific research questions that need to be answered; (3) Examine time and cost constrains; (4) Consider various sampling strategies; and (5) Review data collection and analysis techniques. 10 [...] .. . reduced The quality of education and training fell Management in education and training institutions, as well as that of all sectors, was unable to adapt to the new circumstances In the resolutions of the VIth and the VIIth congresses of the Communists Party and those of the important meeting of the National Assembly, the Government and the Central Party Committee emphasized the importance of education and .. . thousand in 1979 to 2.2 46 million persons The percentage of scientific-technical personnel jumped from 3.6 % of the total labor force in 1979 to 6.8 % in 1993 (See table 3.2 ) - In 1994, the human resources of Vietnam, some 3 8.2 million people, amounted to 5 4.4 % of the country’s population Since 1976 the growth rate of people of working age has increased 3.1 - 3.6 % per annum, which is three times the growth .. . turn improve the lives of individuals, their families and society as a whole The attainment of this objective requires the improvement of the educational and professional level of human resources, an increases proportion of trained personnel in the labor force, and the creation of an environment in which workers can improve their effectiveness and productivity 3 Specific Objectives 17 3.1 Population .. . university 3 1.6 8% 1 8.0 3% 1 7.8 6% 1 5.6 4% 1 4.3 2% 2.4 7% Sector of natural science comprises Sector of technical science comprises Sector of medicine and pharmacy comprises Sector of Agricultural science comprises Sector of social science (exeptis pedagogy) comprises Sector of education and training comprises Post graduated University 6.8 % 2 5.5 % 9.3 % 8.1 % 17% 3 3.3 % Natural science Technical science Science of medicines .. . GDP of Vietnam ranks among the lowest in the world, its Human Development Indicator(HDI) in 1994 is at a medium level (HDI= 0.5 14) The education level of human resources is quite high Only 8.4 % of the total workforce have never attended school ( 3.7 % and 1 0.2 % in urban and in rural areas respectively) 4 6.4 % of human resources have a minimum of primary level of education (5 8.5 % and 40% in urban and rural .. . centers, key schools and private branches - The responsibilities of public and private enterprises concerning their cooperation with the Government in the financing of education and training are the making of contributions, in which they take account of their revenue/profits and the number and level of qualified staff they employ Parents are responsible for the contributions to school building This policy .. . with the market economy and education and training system throughout the world The network of general, professional, and higher education was reorganized so as to allow effective utilization of teachers and infrastructure Various improvements in the quality of education and training include advances in political, moral and physical education, the enhancements of profession-oriented education, the expansion .. . the Ministry of Finance (MOF) and central budget allocation were made through MOF offices at the central, provincial and district levels Nowadays decisions are made jointly by MOET and MOF, with MOF responsible for the allocation of recurrent expenditure and MOET for expenditure for special programs Total allocations of funds for education and training continue to increase However, the percentage of .. . figures stand at 80%-85%, 3 5.2 % and 2-3% respectively - Increasing the proportion of the professionally qualified work force from the present rate of 11% to 18-20% in the year 2000 and to 31-35% in the year 2010 with new qualification relevant to the requirements of the industrialization process The quantitative objectives for the year 2010 are: - Most primary schools to teach full days and be semi-boarding .. . training during the next 5-10 years, financial priority and special facilities must be given to selected schools which will function as centers of excellence aiming at building up the whole system It is hoped that these schools (10-15% of the sector) will reach the standards of the best institutions in the region and gradually those of the world While these school will help to improve the quality of neighboring . Objectives of the Study 2 The objectives of the study are: 3.1. To assess the demand of skilled labor in Vietnam 3.2. To identify the gap between supply and. recommendations to improve the quality of participant in order to meet the market demand. 4. Scope and Limitations of the Study Hanoi and Haiphong are two main