An ecosystems approach for boosting productivity

This ambitious, whole-of-government initiative recognises labour productivity as a top priority for Vietnam, and lays out a broad, comprehensive agenda of reforms involving many ministries.

Gulmira Asanbaeva, project manager Productivity Ecosystems for Decent Work Programme

However, the rate of growth of labour productivity was 3.5 per cent in 2023, which is lower than the target set in the national strategies. This happened for a variety of reasons, but mostly due to a lack of tangible incentives for firms and workers to invest in boosting labour productivity. Essentially, there is a need for an ecosystems approach in order to achieve the goal in a strategic and systemic way.

The International Labour Organization (ILO), the Swiss State Secretariat for Economic Affairs, and the Norwegian Agency for Development Cooperation jointly launched the Productivity Ecosystems for Decent Work Programme in 2022 to address constraints to productivity growth and decent job creation, ensuring through social dialogue that gains are equally distributed.

Rather than using a one-size-fits-all approach or intervening at a single level, the programme addresses productivity and decent work deficits across policy, sector and enterprise levels for win-win solutions that improve productivity and that ensure that gains are distributed equitably through social dialogue.

For this purpose, the programme selected a slice of the local productivity ecosystem, meaning a sector and associated segment of the overall ecosystem in which the potential for productivity growth and decent job creation are aligned with feasibility to intervene. For the initiative in Vietnam, the target sectors are wood processing and machinery.

The figure includes the macro-level (supporting environment, institutions, infrastructure, policies, and social conditions), the sectoral level (access to markets, business linkages, and sectoral supply chains), and enterprise level (innovation capabilities, input quality, and regulations at firm or market level).

The ecosystems approach emphasises that productivity is not just a sectoral policy, but an overarching national goal that needs to be addressed through integrated policies. Vietnam needs to be ready to accept new productivity-boosting factors brought about by Industry 4.0, the rise of AI, new business models, and new financial instruments.

Vietnam is predominantly strong in midstream supply chain operations, but it is not yet a top-of-mind destination for upstream activities such as subcomponent design and production, or downstream activities such as sales and distribution. The uneven manufacturing skills across different stages underline the concern of remaining an assembly platform, and there is still a demanding way up the global value chain.

For Vietnam to move up the global value chain, the focus must be more on educating its workforce. This will enable foreign companies to relocate more upstream manufacturing activities such as the production of subcomponents to Vietnam, making the country less reliant on imports of such components from other countries, for example China.

Therefore, the driver of future productivity growth in Vietnam is an educated workforce, or its human capital.

Human resources are the most important aspect in a successful economic transformation to new growth drivers, as well as labour productivity in general. Other key components, such as capital and technology, can be imported or manufactured domestically, and economic, industrial, and other policies can be implemented to foster a favourable economic climate.

However, it takes time to build the correct personnel. This needs long-term investments, and even when these investments in workforce upskilling are undertaken, there are considerable time lags before these efforts pay off in the form of a more qualified and productive workforce.

Full and equal access to productive employment is crucial for making a rapidly changing economy inclusive. However, skills requirements of new knowledge-based economy will be rapidly changing. Therefore, just relying on young people in education now is not sufficient, and there is a need for urgently re-training the existing workforce and enhancing life-long learning to have skills constantly upgraded throughout the working life. Active labour market policies are the main policy instrument for enabling workers to move from dead-end jobs to new and better ones.

We published a study on new drivers of productivity growth in Vietnam in 2023 initiating national dialogues around enhancing labour productivity.

The Productivity Ecosystems for Decent Work Programme in Vietnam has worked on the engagement of a diverse range of stakeholders since 2023 with the aim of running integrated approaches at all three layers of interventions mentioned previously, and offering evidence-based advice for effective policymaking for government and social partners in Vietnam.

It has also delivered technical advisory support through studies on evidence-based policy options to governmental partners on national productivity frameworks, the employment law revision, development of methodology for productivity measurement, including labour productivity and total factor productivity in cooperation with the General Statistics Office.

Capacity building support in the productivity data measurement was delivered in 2024 based on the new productivity measurement and analysis guide, and the productivity report is expected to be produced in early 2025.

Over 260 small- and medium-sized enterprises in the two target sectors of wood processing and machinery benefitted from support of the project. Over 15 stakeholder institutions are engaged, and multiple partnerships with governmental ministries, business associations, and market-led business serviced providers were built.

These covered five priority intervention areas: developing and implementing market-based middle manager capacity building schemes on productivity skills (with special access for women) for manufacturing firms; promoting digitalisation and development for effective small business data management and resource planning; promoting circularity and decarbonisation; supporting business capacity to facilitate more sectoral dialogue; and promoting decent work in the aforementioned two target sectors of wood processing and machinery.