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Dinh Vu

Economic Sector

Last updated: Wednesday, May 23, 2018


Low Labour Cost: No Longer an Advantage

Posted: Thursday, February 23, 2017

When asked about the risks involved in the investment environment in Vietnam, 60 percent of Japanese companies chose "rising labour cost", although labour cost in Vietnam is lower than that of many countries in the region, such as China, Thailand or Malaysia. This is the information shared by Mr Atsusuke Kawada, Chief Representative of Japan External Trade Organisation (JETRO) at a press conference announcing the "Survey on the status of production and operations of Japanese companies in Vietnam" held in Hanoi on February 14.

Rising labour cost pressures
Labour cost is considered the biggest risk of the investment environment in Vietnam. Mr Atsusuke Kawada said that to solve difficulties in labour costs, Japanese firms can increase training to improve labour productivity.

The top 5 biggest risks also include legal, infrastructure, administrative procedures and taxation. However, excluding labour cost, the percentage of enterprises selected these 4 items has decreased significantly compared to last year, especially in administrative procedures (down 19.3 percent).

Mr Kawada said that recent years, Japanese enterprises to invest in Vietnam are mainly small and medium companies. They tend to pour money into the non-manufacturing industry, leveraging the workforce here in the country's young population. And agriculture will be the focus of investment in the future.

However, as well as previous results, Vietnam still faces a language barrier regarded as the biggest among 15 countries surveyed by Jetro. The countries which are regarded as the most favourable destinations for language are the Philippines, Malaysia and Sri Lanka.

Most Japanese companies gaining profits
Results of the survey among nearly 11,000 Japanese enterprises in 20 countries and territories in the Asia - Pacific region, including 1,285 Japanese enterprises operating in Vietnam showed that the profit of Japanese businesses in Vietnam in 2016 had increased compared to last year and reached a high level. Foreign investment in Vietnam and direct Japanese investment in Vietnam continued to expand both in terms of registered capital and the number of projects.

Among over 600 businesses participating in the survey, 62.8 percent of the respondents said "profitable", up from 58.8 percent the previous year. This ratio is higher than some countries in the region, such as Thailand or Indonesia, but still lower than the Philippines (77.5 percent) and China (64.4 percent).

More than 60 percent of the company also confirmed plans to expand business in Vietnam, mainly to "increase revenue". Meanwhile, with non-manufacturing businesses, the main driving force is "the growth ability and high potential".

Japanese businesses appreciate the political and social stability in Vietnam and consider it the advantage of the investment environment. In addition, the market size - growth ability and low labour cost are also attractive factors. Japanese firms also predict business in Vietnam will be most affected if the Trans-Pacific Partnership (TPP) Agreement takes effect.

As many as 66.6 percent of Japanese enterprises investing in Vietnam are planning to expand their business and continue to consider Vietnam an important investment destination. Giving evaluation on the advantages of the investment environment of Vietnam in the eyes of the Japanese companies, Mr Atsusuke Kawada said that Vietnam ranked 4th out of 15 countries which are believed to have "political and social stability". More than half of companies appreciate the "market size and growth potential”.

Mr Atsusuke Kawada said, when compared with other countries like China and some ASEAN countries, we can see the ratio of Japanese firms which want to expand investment in Vietnam is considerably higher, suggesting that Vietnam continue to be an important investment destination.

Regarding the impact on business activities when TPP takes effect, Vietnam has the highest ratio of companies responding "yes" among the surveyed countries and regions with 29.2 percent. Specifically, 46.2 percent of enterprises surveyed said that the impact is "to increase exports from the head office."

Huong Ly

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