Many Japanese Businesses Want to Leave China for Vietnam

Mr. Takeo Nakajima, Chief Representative of JETRO Hanoi Office, said, that 42.3% of Japanese businesses in a recent survey decided to relocate their production in China and their top-favored new location is Vietnam.

According to the Japan External Trade Organization (JETRO), Japanese businesses want to relocate from China for many reasons and one of the most important reasons is rising input costs. For Vietnam, it has certain advantages to grab Japanese businesses like its investment environment, including market size and growth, stable sociopolitical background and ideal living environment for foreigners.

According to the JETRO survey, more than 63% of respondents said that they intend to expand their business in Vietnam, slightly lower than that in the survey in 2018 but still higher than most ASEAN nations. A majority of Japanese businesses choose to expand their operations in Vietnam as their revenue is expected to go up in the next 1-2 years, especially in local markets and from export markets.

One major concern of Japanese businesses is the localization rate of production inputs. According to the survey, the localization rate of Japanese companies in Vietnam is about 36%, not much changed from 2018. However, only 13.6% was purchased directly from Vietnamese vendors. Meanwhile, the localization rate of Japanese firms in Thailand is 60-70%.

To catch the investment flows redirected from China, Mr. Takeo Nakajima advised Vietnamese businesses to increase their localization rate, which is 36% now, much lower than Thailand with 70%. He added that, controlling and managing supply chains will be difficult if the localization rate in Vietnam is still as low as now. Although the rate of Japanese companies purchasing inputs from China is not high, Covid-19 epidemic impacts may disrupt the supply source. Therefore, in the coming time, Vietnam needs to support local companies to improve their technological capabilities to build up their reliability and reduce costs for Japanese enterprises.

He noted that quite many Japanese companies were established in Vietnam in the last 10 years, with a majority being small and medium enterprises.

JETRO data showed that Japanese companies in Vietnam are among best performers in Asia - Oceania. This result is partly because Vietnam is a steadily growing economy while the world economy and many Asian economies slowed down in 2019, Mr. Takeo Nakajima said.

By sector, manufacturing companies dominate profit-makers. Notably, about half of Japanese businesses surveyed believe their business profits in Vietnam will increase in 2020.

Nevertheless, many Japanese firms are also concerned about rising labor costs, difficult worker recruitment, frequent job quitting, legal risks and complicated tax procedures.

Japanese concerns expect that Vietnam will complete policies and procedures, especially complicated licensing procedures such as investment certificate, tax procedures, customs, and fire prevention certificates.

By Huong Ly, Vietnam Business Forum