Corporate Social Responsibility in Vietnam:
The athletic shoe industry and labor issues1
Introduction
All over the world, companies are learning about achieving commercial success in ways that respect
ethical values, people, communities and the environment. This is described as corporate social
responsibility, or CSR - companies’ economic, social and environmental practices that go beyond
legal compliance in ways that are both good for business and good for development..
For businesses supplying the global market, CSR incentives are increasingly clear, with risks for any
company that is unable to demonstrate the integrity of its production supply chain. CSR activities
need to be part of a government’s strategy to compete in the global economy, presenting the country
as an attractive location for responsible investment. CSR activities also present governments with an
opportunity to advance their social priorities in collaboration with the private sector. Public
authorities have an role to play encouraging debate on the potential costs and benefits of CSR
alongside private associations, supporting pilot schemes and encouraging transparent reporting.
A World Bank mission visited Vietnam from 2 – 7 June 2002, as part of a program of World Bank
technical assistance to national governments who wish to explore their potential roles in supporting
CSR2. The program will include opportunities for the public authorities of participating countries to
compare their national CSR strategies.
The mission focused on the footwear industry as an entry point to the CSR debate in Vietnam,
because consumer concern over poor working conditions in the global footwear industry in the past
has led to improvements by manufacturers working with the high profile global brand companies.
The mission wanted to explore whether these improvements could be extended to domestic
enterprises that are not yet linked into global markets, and what this industry’s experience implies for
other priority export sectors in Vietnam.
The mission’s purpose was to undertake a preliminary diagnostic of 1) labor issues in the footwear
industry, 2) national legislative responses to those issues and the role that public authorities might
play in encouraging related CSR activities, and 3) the potential broader application of these lessons to
national development strategy. The mission listened extensively to the views of stakeholders: the
public authorities, vendor factories, footwear multinational corporations and relevant business
associations, relevant NGOs and mass organizations3, official donor representatives and multilateral
organizations active in this area (a list of individuals/organizations met is provided at Annex 1). The
output of the mission is this report to the government and to VVCI. It proposes a time-bound set of
deliverables for the next 14 months, designed to feed into the government’s strategic planning on
Vietnamese business competitiveness within a globalizing economy, with lessons from the footwear
industry that will be relevant to other important export sectors.
1
This report was prepared by a World Bank team of Nigel Twose (Program Manager, Corporate Social Responsibility,
team leader), Amy Luinstra (HDNSP), Ziba Cranmer (consultant)
2 The project will be administered by the World Bank through a multi-donor trust fund supported by DFID, CIDA and the
Dutch government.
3 Mass organizations in Vietnam include the women's association, the farmers' association, the Youth associations, and the
fatherland front.
1
1. Vietnam’s Economic Growth Strategy
Vietnam continues to make a successful transition from a centrally planned to a market-oriented
economy. During the 1990s, the real economy doubled in size, and the rate of poverty was halved.
Export earnings grew from US$2.4bn in 1990 to $15.1 in 2001. This trend is expected to continue
guided by the Government’s commitment to export-led growth.
Following implementation of the Enterprise law in January 2000, the private sector has flourished in
Vietnam, with over 18,500 new businesses started in 2001 alone. The domestic private and foreign
invested sectors currently produce almost 60% of industrial output. Domestic private sector
investment totaled US$8.68bn from 1996-2000; the government’s target is $15.7bn for the period
2001-2005. FDI inflows for 2002 are expected to be over $1 billion, and the government target for
2001-2005 is $11bn. 4
International economic integration for Vietnam takes an important step forward with the ASEAN
Free Trade Agreement (AFTA) which requires the reduction of tariffs and import barriers among all
ASEAN member nations by 2006. Implementation of the bilateral trade agreement with the United
States and application for WTO accession will further advance Vietnam along the path of integration,
exposing domestic enterprises to fierce competition.
Implementation of these trade agreements will bring great benefits to Vietnam. But the government
recognizes that the pace of economic reform has been slow and that Vietnam’s economic growth
path is not yet on a sustainable footing. Economic efficiency is not high, labor productivity is
generally low, and many sectors and products are not competitive.5
The government’s Comprehensive Poverty Reduction and Growth Strategy sees a harmony between
economic growth and measures to solve social problems, and argues that progress in poverty
reduction must be based on high quality economic growth. Vietnam faces the daunting challenge of
integrating over 1.3 million new entrants into the workforce per year, a figure that is expected to
increase further with the equitization of state-owned enterprises. But Vietnam has successfully
tackled complex social problems in the past; the health care and education indicators in Vietnam are
higher than those in many countries with similar or higher per capita incomes. The government
understands that the country’s human resources will be Vietnam’s big asset in the future. By investing
in employees, increasing productivity and quality, employers will achieve higher profit margins and
contribute to national development. “Improving living standards, working conditions and the
environment for workers … is the target of the government of Vietnam” (Deputy Minister of Trade
Le Van Dao, at a conference of international garment and textile associations6).
2. Corporate Social Responsibility
Corporate Social Responsibility, CSR, refers to companies’ economic, social and environmental
practices that go beyond legal compliance in ways that are both good for business and good for
development..
For business, the drivers of CSR are increasingly clear, with an emerging model based on the cycle of
market incentives. Consumers increasingly look for products untainted by exploited labor or
environmental practices. Other stakeholder groups draw media attention to environmental, social
and labor issues within a globalizing economy, thereby increasing the reputational risk to any
company that is unable demonstrate the integrity of their production supply chain.
All data from the Comprehensive Poverty Reduction and Growth Strategy, Hanoi, May 2002.
Comprehensive Poverty Reduction and Growth Strategy by the Government of Vietnam.
6 Quoted in Vietnam Investment Review, 2 June 2002.
4
5
2
Companies respond to these pressures with CSR investments, often in the form of codes of conduct
for their suppliers. They have subsequently discovered that many of these investments not only help
to protect their reputation, but can also lead to increases in productivity, quality, and overall cost
savings. The end of the cycle is market reward: an increased share of existing markets, access to new
markets, and access to capital from ethical investment portfolios. Currently foreign invested
footwear companies in Vietnam operate at a much higher level of performance with regard to labor
standards than domestic firms, in part because of their close relationships with international footwear
retailers who have impressed upon these companies the importance of CSR.
As with any market-based approach, the model’s success depends on transparency. Experience in
Europe is beginning to show the benefit of public CSR reporting - not government legislation about
what CSR activities companies should undertake, simply a requirement that they disclose their
approach to managing CSR issues. Improving the infrastructure for CSR reporting in developing
countries will serve to encourage local accountability, local debate and to stimulate further adoption
of successful practice. This same infrastructure will help companies set management targets for
themselves that can spur a virtuous cycle of ratcheting up labor standards. As more of these practices
area adopted across the economy, Vietnam can hope to access more responsible FDI and portfolio
investors.
One example of the increasing market importance of the enforcement of labor standards on a
country-level is the recent decision by the California Public Employees Retirement (Calpers)to halt
investments in Indonesia, Malaysia, Thailand, and China because of concerns over poor labor
standards in these countries. As the largest pension fund in the United States and a leader in using its
market power in the pursuit of social objectives, Calpers’ example is likely to influence other
institutional investors to take similar steps.
2.1 CSR and Codes of Conduct in Vietnam
The CSR debate in Vietnam is especially focused on foreign companies and their supply chains, on
corporate codes of conduct and certification processes, such as SA 8000 and FLA
The focus of domestic firms vying for business with foreign firms is therefore not on compliance,
but on which code or standard they should adopt. The world of CSR codes and certification is
competitive, with companies able to choose the standard they will seek, based on their estimation of
the market benefits that may accrue.
The standards embodied in these codes largely conform to Vietnam’s labor law, providing an
opportunity to create a dynamic link between the aspirations underpinning national legislation on the
one hand, and CSR incentives for improvement on the other. Failure to comply with relevant CSR
standards has a potential market sanction. Public authorities should not seek to impose one
particular CSR standard, but can instead encourage this range of market-driven mechanisms and
identify incentives to help ensure that its own legislative standards are implemented in cost-effective
ways, and even ratcheted up as a result of market incentives. Ideally, this would entail the
government working with VCCI and others to collect and disseminate the information most relevant
to business.
Evidence suggests a linkage between sound working conditions and worker productivity.
Documented business benefits derived from CSR activities include: decreases in employee turnover
due to greater job satisfaction and higher wages, and reduced absenteeism resulting from a healthier
workforce. One athletic shoe manufacturer in Vietnam, for example, reports staff turnover rates of
2-3% p.a. in comparison with the 20% average in this sector in Vietnam.
3
2.2 Choosing a Code of Conduct
Although the market for codes of conduct and continually higher demands on labor standards is
reaching Vietnam, many Vietnamese companies currently lack the information necessary to identify
an appropriate code or standard, and lack the capacity to comply. The problem stems from limited
understanding of potential costs/benefits, limited access to capital to finance remedial
improvements, and limited knowledge of appropriate management systems.
The resulting confusion amongst domestic companies about how to adopt a code of conduct or
whether to seek a particular certification entails a number of risks. First, Vietnamese manufacturers
may not be aware of the costs of certification and compliance or how to estimate the potential
benefits of achieving it. Second, the general confusion and misinformation surrounding codes may
create frustration that encourages firms to abandon such “high road” practices, thus putting their
workers and their own long-term business sustainability in jeopardy. Third, pressure to attain the
costliest certification may create barriers to entry for new private firms, thus impeding the growth of
the industry and accompanying jobs.
Costs associated with Code of Conduct Audits or achieving certification in one or another of the
many codes varies widely. According to one industry expert, the costs of Code of Conduct Audit or
of certification to one of the broad industry codes – such as SA 8000, WRAP, FLA, and ETI, can
range from $600 to $10,000 depending on the Code and the size of the business. These fees are
paid to the company or organization that issue the certification. Responsibility for the cost of
certification varies depending on the code, in many cases the international retailer utilizes internal
staff to conduct audits, but the manufacturer is often responsible for the cost of certification to one
of the broad industry codes.
These costs do not take into account the cost of infrastructure upgrades, staff training, consulting or
changes in management systems, and other expenses associated with bringing the company to the
point of compliance. These steps could amount to tens of thousands of dollars in additional
spending by the company, especially if there are infrastructure upgrades required. Companies that
face capital constraints have reported great difficulty in undertaking the certification process.
Government can play a valuable role in encouraging the provision of impartial information about
CSR options in export-processing industries.
3. Footwear Industry in Vietnam and Export Promotion
Footwear represents an important export industry for Vietnam, currently generating $1.5 billion in
annual exports or over 10% of total exports in 2001. Overall, footwear exports have risen rapidly
since 1999 when 221 million shoes were exported from Vietnam; footwear exports in 2000 reached
276 million pairs. Until recently, the European market accounted for 80% of Vietnam’s footwear
export turnover compared to United States which represented only 9% of Vietnam’s total export
turnover. With the opening of the United States market and substantial tariff reductions following
the Bilateral Trade Agreement, footwear exports from Vietnam to the United States, the largest
footwear market in the world, are expected to grow significantly. Vietnam is fourth in the world in
global footwear production behind China, India and Mexico, a ranking that it has achieved only
recently as a result of massive growth in foreign invested manufacturing facilities locating in the
country (see Annex V).
These events and trends create a historic opportunity to attract more footwear investment.
One potentially powerful means of attracting this investment is through high labor standards and a
demonstrated commitment to CSR. The poor working conditions that have plagued the global
footwear industry in the past have frequently attracted the attention of consumers in the massive
export markets of the United States and the European Union. Vietnam has not been immune to such
4
scrutiny. In 1997, a critical labor and environmental audit report by international buyers was leaked to
the press, and reported on the internet and a subsequent TV documentary shown in the United
States with a focus on sweatshop conditions in contractor plants in Vietnam (Frenkel, 2001).
Improvements have been made in sectors of the footwear industry linked into high profile global
brands, but there are reports of residual labor standards issues, particularly in domestic enterprises
that are not linked into global markets.
Vietnam needs to consider its assets as a manufacturing location in the context of its regional
neighbors. On the one side, Cambodia is currently positioning itself to attract foreign investment and
manufacturing contracts with companies that are particularly sensitive to reputational risk. On the
other side, China may be at a complete disadvantage to Vietnam in attracting socially responsible
investment. Researchers for the US Congress found that, overall, Vietnam enjoyed an “apparently
stronger labor rights regime” and one that was more in line with international standards (Manyin,
2001). There are reports that local officials in China are ignoring health and safety regulations in
order to attract foreign investment. Furthermore, The American Apparel and Footwear Association
estimates average labor costs in China at $100 per month and Vietnam at $50. Footwear industry
experts have reported a desire on the part of international footwear companies to find alternative to
their production in China, Indonesia, and other countries that represent risks in terms of political
stability or frequent violations of labor standards. (See Annex V for more information on the global
and Vietnamese footwear industries).
4. Labor Issues in the Footwear Industry in Vietnam
The footwear industry in Vietnam employs approximately 400,000 workers, a number which has the
potential to increase very rapidly over the coming five years. The workforce is predominantly female,
age 20-25. About one-half are married and between 30% and 40% migrate from another –typically
rural - region for the job.7 Salaries of the workers vary considerably, according to the type of factory
(state-owned, private, foreign invested), region of the country, skill levels, and years of experience.
Key Labor issues in the industry include the following:

Occupational Safety and Health: This issue has received some attention by the
Vietnamese business, labor, and NGO communities as well as government, through the
Vietnamese Business Links Initiative (VBLI), but concerns remain, particularly in the
domestic private sector. There is little industry-wide information on OSH. An ILO case
study of a footwear factory found evidence of musculo-skeletel disorders and neurobehavioral change in a large percentage of workers due to repetitive movement and exposure
to chemical solvents (ILO, 2000) . In other studies, Vietnamese footwear workers have
reported experiencing headaches, frequent colds, dizziness, and respiratory difficulty (Global
Alliance, 2000). VBLI has found a number of factors affecting worker health in a footwear:
dust, chemicals, machinery, heat, light, and long working hours (Vietnam Business Forum,
2002).

7
Working Hours. It is difficult to find credible estimates on the extent of overtime in
footwear factories. The sector is particularly prone to deadline pressure and unforeseen
overtime. The issue is difficult because the workers want the extra money and will often
willingly take the overtime, even if illegal, despite the increased risk of injury due to fatigue.
Other issues related to working hours include mandatory overtime and inadequate
compensation for extra hours worked.
Statistics are based on estimates given by various industry experts as well as assessments of factories done by NGOs.
5

Worker turnover. LEFASO estimates that the average annual worker turnover in footwear
is 20%. This not only indicates significant worker unhappiness, it also clearly costs the firm a
great deal of time and money for retraining workers.

Industrial relations: Interviews with workers and factory management indicate that
communication between workers and management is poor, ranging from non-existent to
highly contentious. There is considerable variance in the skills of union leaders at the
enterprise level to represent workers and bargain with management. . There also seem to be
dramatic differences in how unions act in factories with different ownership arrangements,
with a higher degrees of stridency and accountability to workers in the foreign invested
firms, less in the domestic private enterprises, and considerably less in state owned
enterprises.

Migrant workers face Particular hardships. A relatively high percentage of footwear
workers live with families and come from in the communities surrounding factories.
Nonetheless, the 30-40% that migrate to the industrial zones where factories are located do
face a specific set of problems, including lack of affordable and safe housing and social ties
in the community.
While poor working conditions persist in pockets of the footwear industry, the labor market legal
infrastructure in Vietnam is very promising. The government of Vietnam has ratified three of the
eight ILO core conventions:
 C100 on equal pay for men and women;
 C111 on non-discrimination in employment; and
 C182 prohibiting the worst forms of child labor.
Ratification of C138 establishing minimum age for employment is expected imminently. The ILO is
currently working with the government on the forced labor conventions as well. The government of
Vietnam has ratified an additional 12 ILO Conventions covering issues such as labor inspection,
occupational safety and health, and a number of industry specific labor provisions.
4.2 Labor Code Revisions and Enforcement
Accompanied by considerable public debate and technical assistance from the ILO, a comprehensive
labor code was adopted in 1994. As Vietnam gained experience with an open market economy, a
series of amendments to the Labor Code were adopted in March of this year, set to take effect as of
January 2003. The amendments, which include measures to increase the flexibility of employers to
hire and fire workers as well as provisions for restricting overtime, illustrate the government’s
commitment to attracting FDI while maintaining and reinforcing protection of workers.
Consultations with those involved in this debate found general satisfaction with the outcome, with
the exception of misgivings held by employers and foreign investors about restrictions on overtime.
The strength of the labor code, however, is diminished by the severely understaffed and undertrained labor inspectorate in Vietnam. There are only 355 government labor inspectors in the
country. Ho Chi Minh City, an industrial center with 12,557 factories, has six inspectors. In addition,
there were complicated and inefficient divisions of labor among inspectors which encompass
MOLISA and the Ministry of Health. As the government of Vietnam is well aware, there is a dire
need for reforming the labor inspectorate. Limited resources for inspection and a rapidly expanding
number of factories to be inspected, however, requires a highly strategic reform and a better
understanding of how CSR iniatitaves can inform this effort.
6
5. World Bank Group Potential Added Value And Proposed Technical Assistance
During the period of the current Country Assistance Strategy (FY1999-2002), the World Bank
Group has invested heavily in supporting the diagnosis and design phase of Vietnam’s transition to a
market economy. Vietnam’s recent decision to seek WTO accession in the coming five years means
that analytical support and dialogue on private sector issues will be a major ongoing part of Bank
Group activities, accompanied by additional investment to combat vulnerability. This is the context
for the proposed technical assistance to the government on an enabling environment for CSR, linked
to national competitiveness.
A government has four key roles to play in creating an enabling environment for CSR activities:
 providing clarity on the baseline legislative standards that companies may then choose to
exceed;
 providing advice and collaboration on implementation challenges;
 stimulating dialogue within the country;
 encouraging CSR reporting.
We propose technical assistance over the next 12 months (September 2002 - August 2003) related to
each of these four roles:
1. Baseline Legislative Standards: Policy Makers CSR Briefings
We propose a half-day World Bank expert briefing to government policy makers presenting a
comparative analysis of relevant company, industry and generic codes of conduct related to labor
issues, and comparing that content to current Vietnamese national labor legislation. This analysis will
include a review of the appropriate management systems or infrastructure requirements associated
with various code provisions. The briefing will analyze related CSR certification and monitoring
processes, explain costs, detail market incentives related to the different options, and explore ways in
which public authorities could encourage Vietnamese businesses to take better advantage of these
opportunities. The briefing will also offer relevant experience from other countries.
This high-level briefing could be reinforced by the following training modules, specifically targeting
key public officials with related responsibilities:
 Implementation consequences and strategic opportunities for the planned consolidated labor
inspection regime, undertaken jointly with ILO experts. Suggested target audience: labor
inspectorate. Lead responsibility: the ILO, with support from the World Bank.
 Marketing opportunities promoting Vietnam as a responsible sourcing location. Suggested
target audience: trade promotion authority officials. This module would be led by UNDP
experts from its program on trade efficiency and administration. Lead responsibility: UNDP
experts from its program on trade efficiency and administration.
2. Field Testing CSR: Advice and Collaboration on Implementation
We propose a 12 month pilot implementation scheme managed by VBLI/VCCI focused on a small
number of athletic shoe companies, to identify, test and track the business impact of CSR activities,
and the cumulative effect on working conditions.
Inputs will include:
 Collaborative local-level discussion amongst athletic shoe companies, experts, certifiers, local
public officials, Peoples Committee representatives and labor inspectors, on different CSR
codes, their costs, potential market benefits, and the implications for the labor inspectorate.
The curriculum for this event will be the same as that used for the policymakers briefing.
Lead responsibility: MPDF
 Exploration of the application of NGO participatory and communication approaches to
implementation systems of code application, labor code education for workers, and capacity-
7


building for trade unions. Lead responsibility: VBLI and World Bank consultant, in
coordination with Care, Action Aid, Global Alliance, and other NGOs.
Technical assistance in the form of training, identification of relevant management systems,
plus handbook/tools for companies to get started with the process of mapping out a
strategy for assessment and improving labor standards in the factory. Lead responsibility: a
footwear-industry labor expert designated by the international companies participating in the
VBLI management committee, with MPDF plus the World Bank consultant.
Exploration of time-bound credit and subsidized training to cover costs of certification and
associated remediation measures, especially targeted at domestic private companies. Lead
responsibility: MPDF.
The pilot will monitor labor-related benefits in factory performance related to code compliance using
a baseline of common indicators such as staff turnover, absenteeism and productivity. Our
expectation is that this will comprise little more than the information companies already submit to
DOLISA, or from Vietnamese companies that had been previously audited by a international
footwear retailer as part of an initial survey of potential contractors, and finally from productivity
data prepared for internal factory management.
Initial thinking around research design suggests that a representative sample of five factories will be
sufficient, preferably within one geographic location. The pilot will target companies that have the
potential, with technical assistance, to establish a direct supply relationship with a major international
footwear company. We recommend selecting five similar factories where benchmark data on preCSR labor standards are available, the companies would be observed over the course of the pilot and
evaluated in line with standard evaluation techniques. Because the order cycle in the footwear
industry runs in approximately 4-month increments, we believe that this time frame should provide
sufficient data for analysis. World Bank staff will undertake initial research design, with
implementation by a Vietnamese research institute.
3. Advancing the Dialogue Between Government and Industry on CSR
 We propose an awareness raising symposium convened by the VCCI/VBLI with the strong
involvement of the Government of Vietnam through the Project’s Advisory Committee.
The symposium will be linked to the Vietnam Business Forum leading up to the mid-term
2003 CG and designed to explore the issue of CSR standards and their link with national
competitiveness. Lead responsibility: VBLI and World Bank Staff.
 Government conveners could speak of their strategy for Vietnam as a socially responsible
investment and manufacturing location, of their encouragement for CSR as a market-based
tool for quality, and of their strategy for a consolidated labor inspectorate and its relationship
to CSR code inspection regimes.
 Vietnamese business leaders could talk about their experience with code coherence, and
about the notion of going “beyond compliance” to seize market advantage. VBLI could
present early results from the pilot implementation scheme. Other partners could present
relevant CSR initiatives including: Care/Timberland, Global Alliance. World Bank staff
could present a CSR e-learning module.
The Business Forum could establish a working group to draw conclusions about the potential
relevance of the footwear industry experience to other priority export sectors. The objective would
be to prepare for a more strategic discussion with government at the Business Forum in December
2003.
4. Encouraging CSR reporting
We propose that companies participating in the pilot agree to make their CSR reporting data
available, for use in an aggregated form, in return for the dedicated support and credit
experimentation provided through the pilot. This will be used in collaboration with experts from the
8
Global Reporting Initiative (GRI)8 as input to the development of a pioneering country-level CSR
reporting format for developing countries. This high-profile experiment will have three objectives:
 To reduce the burden of multiple CSR audits on Vietnamese manufacturers selling to
external buyers, each with separate CSR code reporting requirements. This is a particular
challenge currently facing the footwear industry; the same problem will occur in other
Vietnam export sectors as they grow, for example apparel, furniture and toys. Our
expectation is that the country-level reporting format could eventually comprise a core
shared report acceptable to all buyers, still permitting individual buyers to audit any
additional requirements specific to their individual code.
 To ensure accurate and comparable information flows about the impact of CSR codes, for
shared learning and accountability purposes to a broad stakeholder community –
manufacturers, retailers, consumers and policymakers.
 To demonstrate to GRI stakeholders (especially financial markets and major multinationals)
the seriousness that the government of Vietnam attaches to market-based quality
improvement mechanisms, providing further incentives for potential responsible investment
in Vietnam.
6. Going Forward
More detailed understanding of evidence from Vietnam’s footwear industry will undoubtedly
have relevance for other export sectors and for FDI strategy. The proposed technical assistance
over a 12 month period is intended to generate evidence of the benefits of encouraging CSR, and
to deepen understanding of optimal government roles in creating an enabling CSR environment.
Government can use that footwear sector experience to look more broadly at CSR across the
economy, and the role it can play in boosting national competitiveness. This could be explored at
the Business Forum in December 2003, and the World Bank Group could offer structured
technical support.
The Global Reporting Initiative (GRI) is an international, multi-stakeholder effort to create a common framework for
voluntary reporting of the economic, environmental and social impact of organizational-level activity. The GRI mission is
to elevate the comparability and credibility of sustainability reporting practices worldwide. The GRI incorporates the active
participation of businesses, accountancy, human rights, environmental, labour and governmental organizations. For more
information, visit their website at www.globalreporting.org/
8
9
Annexes
1.
2.
3.
4.
5.
Vietnam Mission Meetings
Timeline of proposed activities
Linkages to existing efforts on CSR and the footwear industry in Vietnam
Background information on the Vietnamese and Global Footwear Industries
Case Study of management systems
10
ANNEX I : VIETNAM MISSION MEETINGS
U.S. MEETINGS:
U.S.-Vietnam Trade Council
Virginia Foote
President
731 8th street, SE
Washington DC, 20003
202-547-3800 ext.114
American Footwear and Apparel Association
Fawn Evenson
Vice President
1601 North Kent Street
Suite 1200
Arlington, VA 22209
fevenson@apparelandfootwear.org
Social Accountability International
Alice Tepper Marlin
VIETNAM MEETINGS:
International Labor Organization (ILO)
Rose Marie Greve
UNAB
2E Van Phuc
Hanoi
84-4-846-5100
84-4-846-5101
Grever@Ilo.Org
US Embassy
Linda Sprecht
Second Secretary, Labor and Economics Affairs
7 Lang Ha Street
Hanoi, Vietnam
Tel: 84-4-772-1500 ext.2284
SpechtLS2@state.gov
World Bank Staff: Vietnam
Steve Price-Thomas, Partnership Specialist
Carrie Turk, Poverty Reduction Specialist
Deepak Khanna, Country Manager, IFC
Nisha Agrawal, Lead Economist
Mario Fishel, General Manager, Mekong Project Development Facility
Martin Rama, Labor Economist
11
Ministry of Labor, Invalids, and Social Affairs (MOLISA)
Nguyen Manh Cuong,
Deputy Director, International Relations Department
12 Ngo Quyen Street,
Hanoi, Vietnam
Tel: 8.269 542
nmcuong@netnam.org.vn
Vietnam Business Links/ Vietnam Chamber of Commerce and Industry
Nguyen Quang Vinh
Programme Director
9 Dao Duy Anh
Hanoi, Vietnam
Tel: 84-4574-3492
vbli@hn.vnn.vn
Vietnam National Leather and Footwear Association (LEFASO)
Mrs. Nguyen Thi Tong, Secretary General and Deputy Director International relations
Chau Nhat Binh, Chief international relations division
25 Ly Thuong Kiet Street
Tel: 84-4. 9.349593
hhdg@hn.vnn.vn
Vietnam General Confederation of Labor (VGCL)
Dr. Vuong Van Viet
Member, Executive Committee
Deputy Director, International Department
82 Tran Hung Dao
Hanoi, Vietnam
Tel: 84-4-9423-781
doingoaitld@hn.vnn.vn
CIDA
Dean Frank
31 Hung Vuong,
Hanoi, Vietnam
Tel: 84-4-823-5500
dean.frank@dfait-maeci.gc.ca
ActionAid
Ramesh Khadka
Country Director
521 Kim Ma Road, Room 206
Tel: 84-4-771-7692
Rameshk@Aaviet.Netnam.Vn
12
Mr. Manfred Blasberg (Dr. Felix Schmidt, will replace him from mid-Aug)
Mr. Pham Tuan Phuc, Program Director
Frederick Ebert Stiftung
7 Ba Huyen Thanh Quan,
Tel:84.4.8455108/ 8452632
Fesvn@netnam.org.vn
Nike Inc., Vietnam
Chris Helzer
External Affairs
Lalit Monteiro
General Manager
Guy La Salle
Asia Regional Environmental Manager
12th floor, The Metropolitan
235 Dong Khoi St. District 1
Ho Chi Minh City, Vietnam
Tel: 84-8-829-8172 ext.610
Chris.helzer@nike.com
Tae Kwang Vina Inc.
Manufacturer for Nike
C.T. Park, Factory Manager
SGS Vietnam, Ltd.
Robert Parrish
Deputy General Director
63 Ngo Thoi Nhiem Street
District 3, Ho Chi Minh City
Tel: 84-8-930-0024, ext 135
Mobile: 0913 926698
Rob_parrish@sgs.com
Binh Tien Imex Corporation Ltd. (BITIs)
Phan Vi Dan, Assistant to General Director
Ms. Hoang Ai, Deputy Export Manager (ain@bitisvn.com)
129 Bis Ly Chieu Hoang,
District 6, Ho Chi Minh City
Tel: (84-8) 8754513
bitis.vt@hcm.fpt.vn
Adidas
Niall Middlehurst
Senior Manager, Social and Environmental Affairs
5th Floor, Hai Thanh Office Center
2 Thi Sach Street
District 1, Ho Chi Minh City
84(0)8 8298249
84(0)903729407
Niall.Middlehurst@adidas.com.hk
Global Alliance for Workers and Communities
Tran Van Ly
Vietnam Country Director
13
84 4 734 4970
tranvanly@hn.vnn.vn
Global Standards
Carey Zesiger, Development Manager (carey@global-standards.com)
Nguyen Ngoc Chau, Executive Director (chau@global-standards.com)
29 Le Duan St, Suite 1600
District 1, Ho Chi Minh City
Tel 84-8-827-2476
UNDP
Alain Chevalier, Senior Technical Advisor, Trade Promotion (chevalier@undp.org.vn)
Helene La Cour, Programme Officer (lacour@un.org.vn)
Dagmar Schumacher (Schumacher@undp.org.vn)
Head, Social and Economic Reform for Poverty Alleviation Unit
UNIDO
25-29 Phan Boi Chau
Ha Noi, Vietnam
84-4-942-1495
CARE
Nguyen Nguyen Nhu Trang
Health and Social Program Coordinator
91/35 Su Van Hanh Noi Dai Street
District 10, Ho Chi Minh City
Tel: 84-8-862-9459
nnntrang@carehcm.org
Pou Yuen Vietnam Enteprises Ltd. (Subsidiary of Pou Chen)
Peter M.J. Tsai
Vice Manager for the Health, Safety, Environmental Affairs Dept.
Monica Lai (suchulai@mail.pouchen.com.tw)
Nicolai Lin, project coordinator, ISO (liwei.lin@pyv.com.vn)
D10/89Q National Highway 1A
XA Tan Tao
Huyen Binh Chanh
Ho Chi Minh City, Vietnam
Tel: 84-8-8762358
mingjyh@pyv.com.vn
HiepHung Shoes Company
Le Dinh Hung
Managing Director
161F, Da Nam Street
District 8, Ho Chi Minh City
(Tel. 08-8568399)
hiephung@hiephungshoes.com
Phu Hung Company Ltd.
Luu Van Hoang
Vice Director
319 B11 Ly Thuon Kiet Street
14
District 11, Ho Chi Minh City
Tel: 090-3981-222
phshoes@hcm.vnn.vn
HunSan Co, Ltd
Thai Van Hung
President, Director
155A Lac Long Quan Street
Ward 1, District 11
Ho Chi Minh City
Tel: 0913605950
hunsan@hcm.vnn.vn
KingMaker Footware Co.
Ms. Anita Hsu
No.12 Street 3
VN-Singapore Industrial Park,
Thuan An, Binh Duong
Reebok International
Kate Anderson
National Highway 1
Xa Tan Tao
Huyen Binh Chanh
Ho Chi Minh City
Tel: 84-8-876-5381
Kate.Anderson@reebok.com
DFID
Alan Johnson
31 Hai Ba Trung Street,
Hanoi, Vietnam
Tel: 00 (844) 934 4404
a-johnson@dfid.gov.uk
15
ANNEX II: TIMELINE
Activity
Aug
1. Policymakers CSR
Briefings
1a. In-depth for labor
inspectors
1b. In-depth for trade
promotion authorities
2. Field Testing CSR
Sept
Oct
Dec
Jan
Feb
March April
May
June
July
Aug Sept
1-day
seminar
1-day
seminar
Selection of pilots
2a. Briefing for selected factories and
stakesholders
1/2 or full day
seminar
2b. Interventions with
workers
2c. Applied TA with
factories
2d. Concessional financing
2e. Study
Nov
1/2 day seminar
Design
study
Collect baseline
data
Capacity building of TUs; participatory codes; worker
rights education, etc.
Baseline assessment of factories; Training in management
systems, working conditions, etc.
Financial assistance
available
Collect and analyze firm
data
Collect/ analyze firm data
3. Stimulating Dialogue
3a. Government chairs CSR
symposium
3b. Report on
pilots/testimonials
3c. Strategic communication
4. Encouraging reporting
VBF /CG
meeting
GRI Preparation and Implementation
16
ANNEX IV: World Bank Project Linkages to Existing Initiatives
VCCI/ IBLF Business Links Project
The proposed technical assistance is designed to reinforce and expand on practical achievements of
the Vietnam Business Links Initiative, VBLI, on occupational health and safety in the Vietnamese
footwear industry. Initiated by the International Business Leaders Forum, VBLI is managed under
the auspices of the Vietnam Chamber of Commerce and Industry and involves private, state-owned
and foreign invested footwear companies, along with relevant government departments, worker
representatives, research bodies and multilateral agencies. Participants have shared codes of conduct
and principles of best practice related to occupational health and safety, and prepared new training
material adapted to the Vietnamese context to ensure that footwear factories operate to higher
standards. The government’s Standards Department, STAMEQ, participates in VBLI, has checked
materials for conformity with national legislation, and has taken this experience of good practice for
potential subsequent revision of government standards in this area.
Global Alliance/ Care-Timberland
In parallel to VBLI, several footwear companies have independently undertaken innovative
partnerships with NGOs in their factories, designed to raise workforce standards as part of their
strategy to compete globally, using NGOs’ needs assessment participatory techniques and
communication strategies. These include Timberland, Pou Yen and Stella with Care, and Nike, Tae
Kwang and Pou Chen with the Global Alliance for Workers and Communities (in which the World
Bank also participates centrally). There is much to learn from these pioneering approaches to raise
workplace standards for market-driven purposes, since they appear to be impacting core labor
indicators such as absenteeism, productivity and staff turnover.
UNDP
Between 1999-2002, UNDP, with support from the Swiss Government, has implemented a project
to build the capacity of Vietnam industry associations to promote its export products. As the second
most important export category for Vietnam, the footwear industry has been received technical
support through this project. The second phase of this project planned for 2002-2005 will build on
activities implemented during phase one, including an export promotion strategy for the Vietnamese
footwear industry. There are significant complementarities between activities proposed by the World
Bank and UNDP plans for Phase two of its Trade Promotion Project that we hope to exploit in the
course of this project.
ILO
The ILO has recently provided technical assistance to the Government of Vietnam on the
consolidation of its many labor inspectorates and expects to continue this work in the future. The
linkage between inspections conducted through voluntary CSR initiatives and official inspections
carried out by the labor ministry is an important issue that this project will explore in the context of
the policymakers’ briefing. The ILO will lead discussions on this subject with support provided by
the World Bank.
Mekong Project Development Facility (MPDF)
The IFC launched the MPDF in Established in 1997, to provide support to the development of
private, domestically-owned, small and medium scale enterprises (SMEs) in Vietnam. MPDF
provides specialized assistance to two main target groups: private sector managers with plans for
business expansion and organizations providing business support services to private companies.
MPDF has completed projects with over 16 footwear and apparel companies including technical
assistance on quality and labor standards in the manufacturing process. The MPDF will contribute its
expertise in the pilot phase of the proposed World Bank Project.
17
3. Footwear Industry in Vietnam and Export Promotion
Footwear represents an important export industry for Vietnam, currently generating $1.5 billion in
annual exports or over 10% of total exports in 2001. Overall, footwear exports have risen rapidly
since 1999 when 221 million shoes were exported from Vietnam; footwear exports in 2000 reached
276 million pairs. Until recently, the European market accounted for 80% of Vietnam’s footwear
export turnover compared to United States which represented only 9% of Vietnam’s total export
turnover. With the opening of the United States market and substantial tariff reductions following
the Bilateral Trade Agreement, footwear exports from Vietnam to the United States, the largest
footwear market in the world, are expected to grow significantly. Vietnam is striving to improve its
ranking as the eighth largest exporter of leather and footwear products in the world with 2.1% of
overall market. (see Annex V).
These events and trends create a historic opportunity to attract more footwear investment.
One potentially powerful means of attracting this investment is through high labor standards and a
demonstrated commitment to CSR. The poor working conditions that have plagued the global
footwear industry in the past have frequently attracted the attention of consumers in the massive
export markets of the United States and the European Union. Vietnam has not been immune to such
scrutiny. In 1997, a critical labor and environmental audit report by international buyers was leaked to
the press, and reported on the internet and a subsequent TV documentary shown in the United
States with a focus on sweatshop conditions in contractor plants in Vietnam (Frenkel, 2001).
Improvements have been made in sectors of the footwear industry linked into high profile global
brands, but there are reports of residual labor standards issues, particularly in domestic enterprises
that are not linked into global markets.
Vietnam needs to consider its competitive advantage as a CSR sensitive manufacturing location in
comparison to its neighbors in the region. For example, Cambodia is currently positioning itself to
attract foreign investment and manufacturing contracts with companies that are sensitive to
reputational risk. China, on the other hand, may be at a comparative disadvantage to Vietnam in
attracting socially responsible investment. Researchers for the US Congress found that, overall,
Vietnam enjoyed an “apparently stronger labor rights regime” and one that was more in line with
international standards (Manyin, 2001). There are reports that local officials in China are ignoring
health and safety regulations in order to attract foreign investment. Furthermore, The American
Apparel and Footwear Association estimates average labor costs in China at $100 per month and
Vietnam at $50. Footwear industry experts have reported a desire on the part of international
footwear companies to find alternative to their production in China, Indonesia, and other countries
that represent risks in terms of political stability or frequent violations of labor standards. (See
Annex V for more information on the global and Vietnamese footwear industries).
18
Annex V: Footwear Industry
Supply Chain
Input
Suppliers
Inputs:


Producers
Production:
Suppliers of
rubber, canvas,
and leather

Inspecting

Finishing
Equipment
suppliers

Machining
operations

Laying and cutting

Sourcing inputs
Intermediaries
Wholesalers
& Retailers
Intermediaries:
Wholesaling:
 Includes contractors,
agents, and trading
companies
 Find and contract
manufacturers on
behalf of
wholesalers/retailers
 Often handle
production logistics
and new product
development
 Delivery to retailer
 Transport to
warehouse near
final market
 Consolidate
orders from
suppliers
Retailing:
 Sale to final
customer
 Branding and
advertising
Global Footwear Industry
Global sales of athletic and sports footwear in 2000 were $13 billion (sporting goods manufacturers
association) following two years of declining sales. International footwear retailers responded to the
industry slowdown by offering more styles at lower prices. In general, as a mature industry, the level
of competition in the footwear industry is intense with pressures on price and for product
innovation.
Contrary to common perception, the global footwear industry is dominated by the mass merchandise
retailers such as Walmart, Kmart and May Department Stores (Payless shoes) who sell 75% of the
world’s shoes. Profit margins for manufacturers producing for mass merchandise retailers are very
slim, averaging between 5-7% if costs are controlled. Mass merchandise retailers enjoy strong
bargaining power over their suppliers due to global overcapacity among footwear manufacturers.
This has enabled large retailers to dictate prices in contracts. Another important characteristic of
supply chain relationships involving mass merchandise retailers is the use of intermediaries who
negotiate contracts on behalf of the retailers with manufacturers usually located in the countries with
low labor costs. Some of the mass merchandisers have been targeted by pressure-group campaigns,
but to a lesser extent than the large brand name athletic shoe companies.
Athletic shoes are a large segment of the footwear market, accounting for 35% of global sales.
Prominent global brands dominate the footwear market and tend to have direct and long-term
relationships with their manufacturers due to the importance of controlling the conditions in which
their products are produced. These global brand name companies have been the most frequent target
of pressure-group campaigns.
Key Success Factors
Historically, success in the sports shoe manufacturing industry has been determined by a company’s
ability to compete on the basis of quality, timely delivery, and price. Consumer pressure has elevated
the importance of reputation assurance among the major sports shoe brands who have passed this
responsibility onto their suppliers. Sports shoe manufacturers supplying major brands are now
required to ensure that working conditions in their facilities comply with the codes of conduct of
their buyers. In many, if not most cases, the importance of protecting a company’s reputation
19
exceeds that of price. Also gaining in importance is a company’s ability to implement lean
manufacturing systems in response to rapidly shifting demand and the cost of unused inventory.
Footwear industry in Vietnam:
Foreign trade accounts for approximately 80% of GDP in Vietnam, with footwear and apparel
accounting for 10.6% of total exports. There are approximately 200 footwear companies in Vietnam,
employing over 400,000 people. Until 2001, 80% of Vietnam’s footwear exports were sent to
Europe. Implementation of the U.S.-Vietnam bilateral Trade Agreement (BTA) should result in
major increases in Vietnam’s footwear investments to the United States. Manufacturers for Reebok,
Nike, and other major brands have already increased their production of shoes for export to the U.S.
market to take advantage of new tariff schedules. In the case of basketball shoes, for example, tariffs
have been reduced from 35% to 8.5%. The U.S. athletic footwear market is the largest in the world
with sales of $9.17 billion in 2001. Companies also the cite political stability of Vietnam post
September 11th, compared with other popular manufacturing locations such as Indonesia, as a reason
for increased production.
The footwear industry in Vietnam is producing 90% of its products for export with athletic footwear
making up over 46% of total footwear exports from Vietnam.
Product
sports shoes
canvas shoes
women's shoes
others
Total
Source: LEFASO
1999 Total
Production
108.7
37.27
43.26
51.58
240.81
1999 Export
Production
102.73
33.1
39.2
46.17
221.2
Percentage
Exported
94.5%
88.8%
90.6%
89.5%
91.9%
The largest companies manufacturing in Vietnam, and subsequently supplying for the major brands
including Nike, Reebok, and Adidas, are mostly 100% foreign invested companies from Taiwan and
South Korea. This reflects an international trend whereby the major brands in sports shoes work
with a few strategic partners to produce the vast majority of their products in locations where labor
costs are low and workers have high levels of productivity. The sophistication required by the large
brands in terms of product development, flexibility and scale are often difficult for smaller, domestic
manufacturers to achieve.
Attracting foreign investment from these large manufacturers holds two advantages for Vietnam.
One important benefit is simply jobs. Employment creation is essential if Vietnam hopes to integrate
its 1.2 million new entrants to the workforce. Additionally, because these manufacturers produce for
companies with high levels of commitment to CSR, the jobs are quality jobs, characterized by high
relative wages and exemplary working conditions.
The opportunity for Vietnamese companies to supply the large brands directly represents another
potential advantage for Vietnam. Some Vietnamese companies are already engaged in sourcing
relationships with these companies, and industry experts suggest that there is potential to expand this
further. This is an important role for the Vietnamese footwear industry to pursue if it is to increase
the actual value the country obtains from its exports. Industry experts point out that Vietnam
directly benefited from only 20% of its overall footwear exports of $1.55 billion in 2001. In other
countries where the major brands have sourced initially only to their strategic partners who set up
plants in foreign locations to take advantage of labor cost advantages, local manufacturers have
eventually been able to supply major brands following a period during which they have improved
their manufacturing operations, and more importantly for famous brands with reputation concerns,
20
their labor conditions. To this end, the Vietnamese National Footwear and Leather Association
(LEFASO) has prioritized vocational training, labor safety, technical support and trade promotion
for its members.
Another prominent feature of the global footwear industry is the use of intermediaries who act as
purchasing agents, and often fulfill many of the product development requirements, of major
retailers. The presence of these large intermediaries has added another level to the costs associated
with an international supply chain, often squeezing margins at the level of the manufacturers. These
intermediaries are frequently responsible for ensuring compliance with the retailers’ codes of
conduct.
The Vietnamese footwear production industry faces several major challenges in manufacturing for
global brands, most of whom have codes of conduct. The first challenge of compliance often
involves significant investments on the part of the company to upgrade infrastructure, develop
internal management systems, and establish enforcement of its own supply chain. Companies tend
to lack knowledge of systems that could help them address compliance challenges resulting in
frustrations and often a failure to comply with codes. Furthermore, inefficient manufacturing
processes will squeeze margins and could lead to pressure on wages and other important working
conditions.
Equally important is access to capital to finance these investments. Capital markets are limited in
Vietnam and the domestic private sector, still early in its development, has faced particular difficulties
securing financing for infrastructure investments.
Yet another challenge is the cost of complying with multiple codes within one factory. Most
Vietnamese companies produce for several buyers, through contracts arranged through
intermediaries. These buyers have company-specific codes, resulting in significant amounts of
management time and expense spent meeting multiple requirements and hosting audits. In one
factory visited during the mission, the factory manager reported hosting over 50 audits by different
buyers annually. . As is evident by the number of visits, these audits incur significant transaction
costs which must be reduced if the system is to be sustainable.
Given the evidence that CSR policies can lead companies to make operational improvements that
lead to competitive advantage, the questions of how government policy can enable companies to
incorporate CSR into their business model. Based on our consultations, we have concluded that the
solution can be found in increased awareness, implementation tools and technical assistance, and
finally, access to capital to finance the investments.
21
Annex VI: Case Study in CSR and Firm Performance
Case Study: Complying with Overtime Requirements
Compliance with strict overtime requirements, a standard feature in most
corporate codes of conduct and national labor laws, provides a useful illustration
of the hypothesis that improvements in management systems can enable a
company to achieve compliance with its CSR commitments.
Most large companies have three seasons, and change shoe models every four
months. Lead times, which currently run approximately four months, are
shrinking as retailers attempt to improve their response to shifts in demand and
reduce excess or unsold inventory. As major shoe companies improve their
marketing and sales forecasts, lead times will continue to shrink.
Manufacturers are expected to adjust to these shifts in demand as well as
manage design changes, which can include as many as 30 different models of
shoes per year for the major brands. However, this trend is not limited to the
major brands, sport shoe companies across the board reacted to the sluggish
sales of the past few years by offering new and more variations on style. These
new designs often require additional work by isolated stations on the production
line, leading to overtime pressures that are difficult to plan for. Because contracts
negotiate price of delivered goods, the manufacturer must bear the cost of air
transport if it fails to complete production in time to utilize the cheaper option of
transport by sea. Manufacturers that can more effectively manage their response
to rapidly shifting demand will be less likely to violate overtime restrictions
embodied in corporate codes of conduct. In addition, companies will not have to
pay the additional costs associated with paying employees for their overtime
work, allowing the company to increase profit margins.
Anecdotal evidence suggests that there are countless opportunities to
demonstrate the linkages between effective management systems and corporate
social responsibility. The purpose of this project is to explore these linkage and
determine whether empirical evidence supports the previous experience of
companies with model CSR practices.
22
The ILO Area Office covering Vietnam
L:\vietnam\proposal drafts\FINAL Vietnam CSR proposal 27 June 2002.doc
July 15, 2002 10:10 AM
23