Vietnam's Productivity Gap: What Employers Should Do

Key Takeaways

• Vietnam’s labor productivity gap is mainly a system problem, not a matter of employees not trying hard enough.
• Skills are not only in short supply but often misallocated, so a company can pay for capability yet not capture the productivity.
• The productivity gap between domestic and foreign firms relates largely to technology, scale, management and value-chain links, not to ownership itself.
• The employer response is to redesign the operating system around people, not simply demand more output or add isolated training courses.

Labor productivity, put simply the output produced per unit of labour over a given period, is one of the most discussed topics when it comes to the competitiveness of Vietnamese businesses. The problem is that most responses focus on individual effort, while evidence from research institutions points to a gap that is more systemic. This article reframes the problem and sets out what business leaders can do.

Why the question is productivity, not effort

Labor productivity is usually measured as output per worker at the economy level. This is a useful indicator of the broad trend, but it is not a measure of how hard any individual works, nor does it reflect operational efficiency inside a specific company. When a leader reads an economy-wide productivity figure and concludes that their staff are not trying hard enough, that is an unsupported leap.

Asking the right question leads to the right action. If the problem is effort, the response is pressure. If the problem is the system, meaning how work is organised, how managers operate, and what tools and processes are in place, then pressure solves little and can erode motivation. The evidence below points to bottlenecks in how skills are allocated, how work is organised, and how resources are used.

The gap is real but easy to misread

Official data shows Vietnam’s labor productivity improving steadily year on year, alongside a rising share of workers with formal qualifications. This is a positive signal, but it should not be used on its own to conclude that the structural gap has closed. Economy-wide productivity is output per worker, not efficiency per hour inside a company.

A technical caveat matters too: productivity levels at current prices across years are affected by price and exchange-rate effects, so the difference between two nominal figures cannot be read as the real growth rate. For a business, what matters is not the macro number but whether real productivity inside the organisation is improving.

Skills exist but are often misallocated

One of the more striking findings, per analysis by the International Monetary Fund, is that Vietnam faces both a shortage of relevant skills and a situation where many workers hold jobs below their level of training. In other words, skills are not only short in supply but also misused.

This has a direct implication for employers. IMF analysis shows that the wage return on a university degree falls significantly once qualification mismatch is taken into account. A company can pay a premium for capability yet not capture the productivity if job scope, tools, decision rights and career paths are not designed to use that capability. This is why the answer is not only more training, but redesigning work, mapping capability and opening internal mobility.

The gap between domestic and foreign firms

World Bank analysis of firm data shows that value added per worker at domestic private firms is only a fraction of that at foreign-invested firms. The important point is that this gap is not evidence that foreign ownership by itself creates productivity. The World Bank indicates that higher productivity is associated with several factors that domestic firms can act on.

The World Bank also notes that weak links between the FDI sector and domestic firms limit the gains for the wider economy. For FDI leaders, developing local suppliers and transferring management capability raises partners’ productivity while improving resilience and local value creation.

Scaling without systems reproduces inefficiency

Also per the World Bank, very small manufacturing firms achieve only a fraction of the productivity of large firms. Scale can bring better systems, equipment, specialised management and market access. But adding headcount without improving these foundations tends to reproduce inefficiency at a larger size. The practical implication is that standard processes, frontline management capability and productivity data should come before workforce expansion, not after.

Execution capability is an overlooked lever

Strategy and technology only produce productivity when the organisation has the capability to turn them into consistent output. Talentnet’s workforce-capability-readiness report points to a gap between multinationals and domestic firms in execution capability, and to technology ambition that often runs ahead of practical delivery capacity.

A key bottleneck may lie in middle-management capability. Technology investment can fail to translate into business results if managers cannot redesign workflows, set adoption expectations, coach teams and measure value. This is a more specific argument than generic calls for digital transformation.

What employers should do

The answer is not to demand more output, but to redesign the operating system around people. A few complementary directions help.

First, assess and re-architect work. A company should map current capability, compare it with what each role actually needs, then redesign job scope, tools and decision rights to use the capability it is already paying for.

Second, strengthen middle-management capability, where much of the execution gap sits. Managers need to be equipped to redesign processes, lead technology adoption and measure results, rather than only push for output.

Third, adopt technology together with process redesign, not separately. Technology placed on top of an old process rarely produces durable productivity.

For FDI companies, a further direction is developing local suppliers and partners. A structured supplier-development programme, such as a cooperation model between a public agency and a large corporation that has been run in Vietnam, shows that domestic firms can raise productivity and move up the supply chain when they are assessed and advised systematically.

Talentnet’s role

The productivity gap is a question of capability and systems, not of effort. Talentnet Academy focuses on capability development tied to strategy, and Talentnet’s HR consulting supports job architecture, leadership development and redesigning how organisations operate. For a company that wants to close the productivity gap systematically rather than patch it, this is a starting point to consider.

Frequently asked questions

What is labor productivity? It is the output produced per unit of labour over a period. At the economy level it is usually measured as output per worker, but inside a company what matters more is efficiency per hour worked.

Where does raising productivity start? With the system, not with demanding more effort: job architecture, middle-management capability, and adopting technology alongside process redesign.

Is training enough to raise productivity? Training is necessary but not sufficient. If work is not designed to use capability, more training still struggles to convert into productivity.

Conclusion

Vietnam’s labor productivity gap is not a story of workers being lazier, but a story about the system: skills misallocated, execution capability still developing, technology not tied to process, and weak links between firms. The companies that close this gap are the ones that redesign how they operate around people, rather than simply demanding more output.