Japanese Enterprises Want to Expand Operations in Vietnam

Mr Atsusuke Kawada, Chief Representative of JETRO in Hanoi, said: "There are about 2,000 Japanese businesses investing in Vietnam, including representative offices. It can be said that the investment as well as business activities of these businesses have gone into its development trajectory. Therefore, these companies are looking to expand their operations in Vietnam. This was clearly shown in 2013 when the number of expanded projects dramatically increased."

 

According to the survey, about 90 percent of businesses said that the main reason to expand business is "increase in sales". For non-manufacturing businesses, over 60 percent of them said that the main reason is "high growth possibilities and potential. “The trend of Japanese companies is to establish their 2^nd or 3^rd factories in Vietnam and their focus tends to switch to areas and localities other than the big cities like Hanoi or Ho Chi Minh City,” added Mr Atsusuke Kawada.

 

The respondents that answered "loss" is 25.6 percent, up 5.3 percent compared with the previous year, but those that said "gaining profit" is 60 percent. If calculated according to the type of enterprise, the export processing enterprises (EPE) are operating better, while 30 percent of the non-export processing enterprises (Non EPE) said "loss".

 

Most Japanese businesses appreciate "market scale, growth potential," and "social and political stability" of Vietnam. Vietnam ranked fourth (33.3 percent) among 15 countries in ease of recruiting labour. However, "supporting industry development (1.9 percent)," "electricity infrastructure," "transportation," "telecommunications (4.8 percent)," "difficulty in communication," “language (7 percent)" are still ranked low.

 

According to JETRO, investing in Vietnam still bears risks, namely sky-rocketing labour cost, administrative procedures, untransparent policies, complicated tax regime, customs procedures and legal system. In particular, over 60 percent of the businesses said that the laws and policies, administrative procedures, tax regimes, customs procedures, increasing labour costs are big problems.

 

In terms of the ability to supply raw materials and spare parts for domestic industries, the localisation rate in Vietnam reached 32.2 percent. Although this ratio has increased over the previous year, compared to other countries such as China, Thailand, Malaysia, Indonesia, the localisation rate in Vietnam is still low. From the ratio of raw material supplies and local materials, the rate of purchase from Japanese enterprises in Vietnam was 42.6 percent, up 5.9 percent points. The percentage of buyers from Vietnam is now 41.0 percent, down 4.0 percent points. To improve cost competitiveness, boosting purchase of materials and supplies from Vietnam is now essential. Moreover, an export to Japan is the largest, accounting for over 60 percent of the export ratio of Vietnam. In addition, exports to ASEAN have increased a bit. Furthermore, 36.6 percent of Japanese enterprises in Vietnam expect to be able to take advantage of EPA / FTA, higher than the previous year.

 

The experts from JETRO also said that although the increased rate of the minimum wage in Vietnam decreased due to the economic downturn, it still remains high. However, wages (gross annual salary) is relatively low compared with other countries.