Supporting Japanese SMEs to Make Long-term Investment in Vietnam

Pham Thi Thu Hang, Secretary General of the Vietnam Chamber of Commerce and Industry (VCCI), states that in recent years, Vietnam-Japan relations have turned into a new chapter with new developments stronger than ever, evidenced by an increasing number of Japanese enterprises in Vietnam. There are 1,000 Japanese enterprises and 10,000 Japanese living in Vietnam. Japan is the largest ODA donor of Vietnam for the period of 1993 -2013. In 2014, the Japanese government pledge to give the US$3.5 billion ODA to Vietnam. Besides, the countries are gradually opening up and loosening technical barriers to exports and imports. The two countries are targeting to double the trade turnover and investment in 2020.

 

Ms Hang also emphasised that the investment trend of Japanese companies is diversified by many types of businesses from previously large businesses in manufacturing sector to SMEs in service sector, IT, and human resources. Ms Hang cited Decision 1043/QD-TTg dated Jan 07 2013 of the Prime Minister approving the Industrialisation Strategy of Vietnam in the Vietnam-Japan cooperation framework towards 2020 and vision to 2030. Accordingly, Vietnam is focusing on 6 priority industries: electronics, agricultural machinery, agricultural and seafood processing, shipbuilding, environmental and energy saving, automobile manufacturing and spare parts. This forum will be a bridge connecting the SMEs of the two countries and change the approach of the businesses and government agencies.

 

According to Dinh Ngoc Hai, Chairman of the VJBA, SMEs play a major role in the economy of Japan. The "Abenomics" policy is encouraging Japanese firms to more actively develop and reach out to other countries and Vietnam is one of the important destinations. According to the unofficial statistics of the Japan Chamber of Commerce and Industry (JCCI), up to 50 percent of Japanese SMEs want to reach out towards the Vietnamese market.

 

According to the data presented at the forum, Japan's FDI in 2011-2013 topped 101 countries and territories investing in Vietnam. During the period of the economic crisis, when Vietnam faced declining investment capital, a new wave of investment from Japan continued to flow into Vietnam. As of Sep 2014, Japan had 2,410 investment projects in Vietnam with total capital of up to US$36.3 billion. From April, 2011 to Jan 2012, JETRO office in the Ho Chi Minh city welcomed 2,400 Japanese investors looking for investment opportunities in Vietnam. This is a good sign for stronger cooperation between the two countries in the future.

 

Mr Hai said that the major competitive advantages of Vietnam, compared to many other countries in the region, in the context of intra-ASEAN economic cooperation, are growing stronger. Vietnam has lower labour costs and political stability; and more importantly, Japanese investors are looking for more strategic partners in the region to prepare for the TPP negotiations.

 

However, Mr Hai said that Vietnam is less competitive than other markets due to the reasons like underdeveloped infrastructure, weak supporting industry and low localisation rate. In addition, administrative procedures in Vietnam are cumbersome and preferential policies for foreign enterprises still lack consistency. Mr Hai recommended that Vietnam needs to quickly overcome disadvantages in order to further enhance competitive advantage and attract investment of Japanese firms in particular and foreign investors in general.

 

Based on evaluation of the participants on the partnership opportunities with Japanese enterprises in the new phase, human resources will be a very important factor to fill the gap between Japan and Vietnam. Besides, the number of the Vietnamese people in Japan is growing, which will widen the markets to provide services and products to the Vietnamese community in Japan.

 

The number of SMEs accounts for 99.7 percent of Japanese enterprises; however, this community has few overseas investment activities. The new economic policies are promoting SMEs. According to the recent report, Vietnam is 2.8 times higher rated than Thailand and ranked first among the countries that investors who want to select as a substitute place for China. However, the results of attracting Japanese SMEs into Vietnam are not comparable to the expectations and potentials of Vietnam.

 

The reason is that there is no distinction between SMEs and large Japanese enterprises; infrastructure and services fail to meet the demands of SMEs and SMEs are not provided with full information of the Vietnamese business environment. In particular, Vietnam has not offered one-stop shop for Japanese SMEs.

 

This Vietnam-Japan Forum is expected to handle this shortcoming. The forum will provide the most complete information for Japanese SMEs to invest in Vietnam and also, help Vietnam to understand exactly the needs of Japanese SME to respond effectively and fully to the growing needs of these Japanese enterprises.

 

Besides, the forum will act as a bridge connecting Japanese SMEs with responsible agencies of Vietnam and Vietnamese enterprises.

 

In over 40 years of official relations, Vietnam and Japan have been partners in all areas of trade, investment, ODA, and social security. This relationship is growing and comprehensively developing. The major difficulty of Japanese SMEs is the unclear and insufficient legal framework for their investment activities, poor protection of intellectual property rights, low-skilled labour forces.

 

Besides, they face difficulties seeking trusted partners; complicated administrative procedures regarding the Tax and Customs also discourage their investment decisions. Besides, SMEs are still facing barriers of language and culture when doing transactions in local banks. Currently, products and services of financial institutions are not translated into Japanese. They face difficulties accessing loans of the banks as well as fluctuation in exchange rate. Commercial banks need to establish Japan Desk for Japanese clients.

 

In the future, the central and local agencies will review investment procedures to come up with solutions to attract more FDI.