Comparison of labor costs and operating costs in factories in Vietnam

Production costs are a crucial factor in determining an enterprise is profitability and competitiveness. Specifically, labor costs and operating costs are key elements in optimizing production activities. So, how do labor costs in Vietnamese factories compare to those in the region? How are operating costs changing? In this article, Kizuna will analyze each factor in detail, providing enterprises with a comprehensive understanding and guiding them toward an effective cost optimization strategy.

1. Overview of operating costs of factories in Vietnam

Vietnam is an attractive destination for many manufacturing enterprises thanks to its competitive labor costs and increasingly favorable investment environment. However, in addition to labor costs, enterprises also need to consider overall operating costs to optimize profits.

Two important factors in the production cost problem include:

● Labor costs: Including wage, insurance, allowances and other benefits for employees.
● Operating costs: Including factory rental costs, energy, machinery maintenance and management.

Understanding the structure of operating costs enables enterprises to optimize their resources.

2. Labor costs in Vietnam factories

Labor costs are always one of the most important factors for manufacturing enterprises. Vietnam has long been known as an attractive destination for investors thanks to its abundant, affordable labor force and increasingly improved skill levels. However, not all enterprises clearly understand how to calculate and optimize labor costs.

2.1. Overview of labor costs

Labor costs in a manufacturing plant include wages paid to workers and many other items, which directly affect the total operating costs of the enterprises. The main components of labor costs include: 

● Basic wage: The primary amount that an enterprise pays to its employees under a contract, often affected by the regional minimum wage set by the state.
● Social insurance and wage deductions: Enterprises must pay social insurance, health insurance, and unemployment insurance at prescribed rates, accounting for a significant portion of labor costs.
● Allowances and subsidies: Includes allowances such as gas, lunch, accommodation, attendance and industry-specific allowances.
● Training costs: Enterprises must spend money to train workers, especially in industries that require high skills or apply new technology.
● Other benefits: Holiday bonuses, overtime pay, medical support, travel, internal welfare programs to retain employees and improve labor productivity.

2.2. Factors affecting labor costs

Labor costs in Vietnam factories are affected by various factors, including:

● Skill level: Skilled workers usually earn higher wages. In addition, industries such aselectronics and mechanics that require high technical skills will have different wages compared to textiles.
● Geographical area: Workers is wages in the South (HCMC, Binh Duong, Dong Nai) are often higher than those in the Northern and Central regions due to higher living costs and labor demand.
● Manufacturing industry: Industries with a high proportion of unskilled workers such as textiles have lower wages than that in high-tech industries such as electronics.
● Minimum wage policy: The State regulates regional minimum wages, which directly affects enterprises’ labor costs.

Labor costs in Vietnam factories are affected by various factors.

2.3. Wage and benefits of Vietnam factories’ workers

The wages of workers in industrial parks in Vietnam vary among regions. Below are the average wages of workers in some major regions:

● Northern region: Workers in industrial parks in Hanoi, Bac Ninh, Hai Phong, and Quang Ninh have an average wage of about 6 - 8 million VND/month.
● Central region: Workers in Da Nang, Nghe An, Thanh Hoa have an average wage of about 5.5 - 7 million VND/month, lower than that in the North and South.
● Southern region: Ho Chi Minh City, Binh Duong, Dong Nai are the areas with the highest wages, ranging from 7 - 9 million VND/month.

In addition to the basic wage, workers in Vietnam factories also enjoy a number of accompanying benefits, including: Social insurance, health insurance, unemployment insurance, allowances, overtime pay, holiday bonuses, Tet bonuses, etc.

3. Vietnam factory operating costs

Besides labor costs, operating costs are a crucial factor in determining an enterprise is production efficiency and profits. Depending on the industry, production scale and level of automation, operating costs of Vietnam factories vary significantly.

3.1. Main components of operating costs

Factory operating costs include a variety of expenses, each of which has a major impact on the total
cost of production. The main components include:

● Energy costs: Include electricity, water, fuel - factors that directly affect production.
● Rental costs: Warehouse and factory rental rates in Ho Chi Minh City and Hanoi are higher than those in neighboring provinces.
● Machine maintenance costs: To ensure production performance, enterprises must invest in regular maintenance.
● Management and safety costs: Include training, labor protection, environmental treatment.

Factory operating costs include various expenses.

3.2. Fluctuations in operating costs by industry

Each manufacturing industry has its own characteristics, leading to differences in the cost structure of operating factories in Vietnam.

● ETextileLabor costs account for a large proportion, operating costs are relatively low.
● Electronics: Requires high technology investment costs and large energy consumption.
● Food processing: Requires large costs for food preservation and safety control.
● Mechanical: Expensive maintenance costs of machinery and materials.

3.3. Technology trends and impacts on operating costs

The development of technology is contributing to changing the way businesses manage operating costs. Advanced technology applications help reduce costs significantly and increase production efficiency:

● Automation and robotics: Reduce dependence on manual labor and cutt long-term labor costs. In addition, robots can take on dangerous jobs, increase efficiency and minimize production errors.
● AI and IoT: Sensor systems and artificial intelligence monitor machine operations in real time, predict maintenance, and avoid incidents that disrupt production.
● Renewable Energy: Numerous enterprises invest in solar and wind power to reduce their dependence on grid power, thereby reducing electricity costs in the long term.

4. Comparison and overall evaluation of labor and operating costs

Labor costs and operating costs both play a significant role in the total production costs of factories in Vietnam. However, the impact of each cost type varies depending on the industry, scale, and production strategy of the enterprise.

4.1. Correlation between labor costs and operating costs

In labor intensive industries such as textiles and garments, labor costs account for the majority, while high-tech industries such as electronics and mechanics focus on operating costs such as energy and machine maintenance. As the minimum wage increases, Vietnam’s advantage of affordable labor gradually narrows, forcing enterprises to find ways to optimize the whole instead of relying solely on affordable labor.

Labor costs and operating costs both play a significant role in the total production costs.

4.2. Future cost optimization trends

Enterprises are increasingly adopting automation to reduce labor costs, while optimizing operating costs through renewable energy and relocating to lower-cost areas. Additionally, worker training is being prioritized to enhance productivity.

In the long term, balancing labor and operating costs, combined with technology investment, will help manufacturing enterprises in Vietnam maintain their competitive advantage.

The above provides a detailed analysis of labor costs and operating costs in Vietnam factories. Understanding the cost structure and optimization trends will help enterprises have appropriate strategies to improve production efficiency. If you are seeking an optimal production environment, Kizuna is proud to be a leader in offering ready-built factories with comprehensive services in
Vietnam, allowing enterprises to focus on sustainable production. Contact our Hotline 0272 3900 191 today for advice on the most suitable solutions!