Vietnam - The First Choice of Japanese Investors

The survey was conducted in January and February of 2006 and had 966 feedbacks. Most of interviewees are operating in five major industries of equipment for transport vehicles (15.4 per cent), electric-electronic parts production (14.8 per cent), metal production (7.8 per cent), chemical (7.7 per cent), and electric-electronic equipment production (7.5 per cent).

 

 

The survey showed the trend that more and more Japanese firms were moving production establishments within ASEAN and between ASEAN and China. Specifically, 20.5 per cent of Japanese firms in China want to expand operations into Vietnam, nearly 2.8 times higher than the rate in the runner-up, Thailand. Similarly, 6.8 per cent of Japanese companies plan to remove a part of their production from China to Vietnam, nearly doubling that of the runner-up, Malaysia (3.1 per cent).

 

The core reason to choose Vietnam is low input costs, 56 per cent of surveyed Japanese investors said. Another one is the admirable economic growth of Vietnam in recent years, similar to that in China previously.

 

The economic growth prospect promises various business opportunities and attracts Japanese investors from China. A 23 per cent and 18 per cent of surveyed firms will invest in equipment production for transport vehicles and electronic-electric parts manufacturing, respectively.

 

However, Vietnam still needs to pay attention to severe competition from regional countries, like the Philippines in equipment production for transport vehicles, and Malaysia and Thailand in electronic-electric parts manufacturing.

 

Supporting industries and infrastructure are highest hindrances

Assessing the investment environment, all surveyed companies said that supporting industries and infrastructure are two highest hindrances for foreign firms in Vietnam.

 

Vietnam has advantages over the others in the socio-political stability, low production costs, labour management capacity and more stable exchange rate. However, this advantage is affected by recent consecutive worker strikes. 

 

In addition, the Vietnamese infrastructure is very poor, only a bit better than India. Other shortcomings include customs procedures (under 7 per cent) and intelligent protection rights (under 6.9 per cent). Vietnam and Indonesia are still weak at these while other ASEAN countries and India have generally improved their situations.

 

Japanese investment flows into Vietnam will be on the riseThe survey showed 49.6 per cent of Japanese enterprises had better business results in 2005 than in 2004 while 29.7 per cent suffered downtrends.

 

In medium and long-term investment attraction, Thailand and Vietnam are the favourite destinations in the region. In six backbone industries, these two nations are highly appreciated for four industries of electronic-electric parts production (Vietnam top) and electronic-electric equipment production (Vietnam runner-up), equipment production for transport vehicles and plastics (Vietnam runner-up). However, Vietnam still has a weak chemical industry.

 

In 1-2 years, Japanese firms will continue increasing investments in surveyed nations, especially Vietnam and India. 78 per cent of Japanese firms plan to expand production in Vietnam, only second to India. According to statistics from the Foreign Investment Department under the Ministry of Planning & Investment, the investment capital increase in 2005 nearly doubled that in 2004 and the volume in the first quarter of 2006 was over 5 times higher than the same period of 2006.