Attracting Japanese Investment: Stable Policies, Skilled Talent, Deeper Localization Needed

Amid a period of sharp divergence in global FDI flows, Japan has continued to maintain its position as a strategic investor in Vietnam. However, behind the strong business results, the day-to-day operations of enterprises have exposed a number of bottlenecks related to policies and human-resources. Haruhiko Ozasa, Chief Representative of the Hanoi Office of the Japan External Trade Organization (JETRO Hanoi), shared his views on these issues with our reporter.

Haruhiko Ozasa, Chief Representative of the JETRO Hanoi, announces the 2025 survey on business conditions of Japanese-affiliated companies overseas, January 26, 2026

Vietnam is widely seen as a safe investment destination, yet Japanese enterprises still assign fewer core functions such as R&D or regional management in Vietnam than the ASEAN average. What bottlenecks must be addressed for Vietnam to move beyond a processing hub?

To transition from a processing hub to a research and development (R&D) center, the most critical factor is not only political stability but also policy predictability. R&D investment decisions are based on long-term roadmaps and involve substantial costs. When the legal and regulatory framework changes too abruptly or lacks clarity, enterprises are reluctant to place such core functions in Vietnam. Strengthening dialogue with foreign investors to develop a clear and stable policy roadmap would enable them to commit more confidently to deeper technology investment.

Beyond internal challenges, global geopolitics, especially additional U.S. tariffs, are creating mixed effects. Which sectors are directly benefiting from this relocation trend?

The positive impact mainly stems from the relocation of orders. Amid U.S.-China trade tensions, many orders previously placed in China have been shifted to Japanese enterprises operating factories in Vietnam. Enterprises engaged in high value-added processing or in industries supporting emerging supply chains are seeing opportunities to expand operations. In addition, instead of focusing solely on exports to the U.S., some enterprises have shifted toward investment in warehousing and cold-chain logistics to serve Vietnam’s domestic market, using this as a way to diversify revenue sources.

The transport equipment and components manufacturing has been a Japanese stronghold in Vietnam, yet more enterprises are planning to scale back. Is the rapid rollout of energy transition policies, such as restrictions on gasoline vehicles, creating investor uncertainty?

It is true that new regulations related to energy transition and restrictions on gasoline-powered vehicles have placed considerable pressure on motorcycle parts manufacturers, which operate dense supply chains in Vietnam. This reflects a broader issue of limited policy predictability. However, following recent dialogue sessions, Hanoi’s authorities have introduced more flexible implementation roadmaps. JETRO welcomes the Vietnamese Government’s willingness to listen and adjust, but cautions that rushed policy changes can slow enterprise growth and may prompt firms to reconsider investment expansion plans.

JETRO’s report highlights a clear reality: recruitment challenges in Northern Vietnam are far greater than in the South. Is the expanding presence of large technology groups from China and Korea placing significant pressure on the labor market and forcing Japanese enterprises to adjust their strategies?

This assessment is accurate. The Northern region is experiencing a strong influx of investment from Chinese and Korean enterprises, particularly in electronics and semiconductors, which has intensified competition for high-skilled labor. Japanese enterprises, traditionally valued for stability, are now facing pressure from higher wages and more attractive benefit packages offered by competitors. This has become the most significant challenge for Japanese manufacturing operations in the North over the next one to two years and underscores the need for local authorities to strengthen labor supply and workforce development.

Despite clear improvements in technical capabilities, locally sourced components still account for only about 18.3%. What is the key for Vietnamese enterprises to participate more deeply and sustainably in Japanese value chains?

In practice, the technical capabilities of Vietnamese enterprises have improved steadily year by year. Through supply-demand matching exhibitions organized by JETRO, many Japanese enterprises have acknowledged the rapid advancement of Vietnam’s technological level. However, the main challenge lies not only in technology, but in maintaining consistency in quality, cost, and delivery schedules. To raise localization rates, Vietnamese enterprises need to invest more deeply in internationally standardized quality management systems. From JETRO’s perspective, we remain committed to continued support through training programs and to expanding dialogue platforms so that enterprises on both sides can better align within the supply chain.

Thank you very much!

By Hương Ly, Vietnam Business Forum