Flexibly Meeting Needs of Japanese Investors

11:39:06 AM | 5/3/2021

Japanese companies tend to expand their investment and build more business bases in Vietnam although they may face a lot of difficulties caused by the Covid-19 pandemic. However, their investment needs have changed a lot, especially since the Covid-19 pandemic outbreak.

Mr. Takeo Nakajima, Chief Representative of JETRO in Hanoi, said, given the outbreak of the Covid-19 pandemic, business operations of Japanese companies in Vietnam were considerably affected. Up to 52.8% saw a profit decline and 30.1% suffered losses. Indeed, compared to other countries in the region, companies in Vietnam performed better. In addition, 49.6% forecast an operating profit while 20.3% expected balanced business operations.

Furthermore, while investors are shifting their investment priority, Vietnam is currently emerging as a favored destination for Japanese businesses. Up to 50% of companies appreciate Vietnam's market advantage and 46.8% have plans to expand their business in Vietnam in 1-2 years although the rate of expanding companies is lower than in 2019. Anyway, this was the fourth-highest rate in the Asia-Pacific.

Despite strong confidence in the country as a new destination for relocated investment waves, 6.1% said they planned to scale down their operations or move to other countries.

Demand for change

The JETRO representative said, the survey unveiled some changes Japanese companies wanted. Regarding the business method, 49.5% will review their sales units on fears of Covid-19 contagion and 16.3% blamed on changes in the business environment. Regarding future business development, 22.3% of manufacturers planned to reevaluate purchasing places because of the Covid-19 pandemic and changes in the business environment. They wanted to change vendors and Vietnam ranked fourth among their choices, accounting for 4.3%. After changing vendors, Vietnam was the top choice, accounting for 18.8%.

According to Mr. Takeo Nakajima, many Japanese businesses expressed their interest and desire to cooperate with Vietnamese technology and startup companies to add value to their products and services. They also wanted to employ local supply chains to support their business activities but Vietnam's supporting industries have yet to meet their high demands.

Besides manufacturers of semiconductors, telephones and components, and air conditioners, Japanese medical companies are also looking to move to Vietnam.

Notably, the JETRO survey showed that companies that assessed cheap labor costs as an advantage were fewer than last year. JETRO's chief representative added that increased labor costs, rising layoffs and low localization rate of Vietnamese enterprises are seen as challenges by Japanese companies. Wage growth slowed down but remained high.

In addition, the advantage of low cost (purchasing cost and labor cost) was no longer attractive to Japanese firms when they planned to expand investment in Vietnam.

Mr. Do Nhat Hoang, General Director of the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment (MPI), said, Vietnam needs to solve the challenges and bottlenecks to woo high-class FDI investors and flexibly meet the new demand of foreign investors. The solution is to review slow-moving and ineffective projects to revoke bad ones to dedicate the land fund for new investment projects; train high-quality human resources for digital, information technology, applied information processing, electronics - telecommunications, mechanical engineering, manufacturing, and supporting industries.

By Huong Ly, Vietnam Business Forum