HANOI – Japanese companies in general still consider Vietnam as a key destination for their production bases although business barriers are still there to be removed, said Japan External Trade Organization (JETRO).
In a report released in Hanoi on Monday, JETRO said 70% of operational Japanese-invested companies in Vietnam have plans for business expansion, a higher rate than elsewhere in the Asia and Oceania where JETRO conducted the survey. The survey was launched last year.
Atsusuke Kawada, head of the Hanoi Office of JETRO, said the rate in Vietnam on expansion plans was higher than all other regional countries, which was at 66.4% in Indonesia, 66.2% in Thailand, and 51.6% in Malaysia. About 90% of Japanese respondents in the survey said they planned business expansion to cash in on the huge market potential.
Japanese enterprises consider Vietnam as an important production base, said Kawada, adding Japanese firms see good opportunities to boost revenues here.
Data in the report show 26% of Japanese firms active in Vietnam incurred losses last year, an increase compared to the previous year, but up to 60% reported profits. Export processing enterprises outperformed others, according to the report.
While the majority of Japanese enterprises mulled expansion schemes in Vietnam, Kawada said business hurdles are still there to be removed despite repeated outcries from the business community in Vietnam.
High risks for Japanese investors when doing business in Vietnam, according to Kawada, include fast-rising labor costs, complicated administrative procedures, lack of transparency in Government regulations, the taxation system and the legal system.
Around 66.6% of respondents said they were worried over rising labor costs, while 66% complained about complicated administrative procedures, and 56% were concerned about lack of transparency in policies. In addition, 65% said the customs formalities were complicated, and 68% said the legal system is yet to be complete. The labor cost despite rising is still much competitive in Vietnam, at some US$3,000 a year on average, compared to other countries.
Another issue of concern is the low localization content in products manufactured by Japanese enterprises in Vietnam. This rate is only 32.2% in Vietnam compared to 64% in China, 53% in Thailand, and 42% in Malaysia.
According to JETRO, Japan is the single largest foreign investor in Vietnam with over 2,000 projects worth US$34.6 billion. Last year alone, Japanese investors pledged US$5.7 billion of investment in Vietnam.
Remarking on the trend of Japanese investment in Vietnam, Kawada said Japanese investors show special interest in supporting industries in the country. In order to boost the local content, Japanese will increase purchase of components from other foreign-invested enterprises in Vietnam.
In addition, Japanese investors will also transfer technologies and supply production lines to manufacture components for exports back to Japan.
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