More than 50 per cent of surveyed Japanese enterprises operating in Vietnam confirmed high growth potential. This stems from the investment environment in Vietnam, especially in Ho Chi Minh City, which has tended to improve positively. The investment environment is moving towards more transparency.
Expansion priority
The result was confirmed by Mr Yasuzumi Hirotaka, Chief Representative of the Japan External Trade Organisation (JETRO) in HCM City, at the end of February 2016. According to Mr Yasuzumi Hirotaka, though the proportion of Japanese companies investing in Vietnam in 2015 gaining benefit accounted for 58.8 percent (down 3.5 percent compared to 2014) and the number of enterprises reporting losses accounted for 26.2 percent (up 1.3 percent), Vietnam continues to be regarded as the hot investment destination to which Japanese businesses want to expand investment. More than 60 percent of the nearly 600 Japanese companies operating in Vietnam said they wanted to expand the business, the highest rate among Japanese companies investing in 19 other countries and territories.
The result was confirmed by Mr Yasuzumi Hirotaka, Chief Representative of the Japan External Trade Organisation (JETRO) in HCM City, at the end of February 2016. According to Mr Yasuzumi Hirotaka, though the proportion of Japanese companies investing in Vietnam in 2015 gaining benefit accounted for 58.8 percent (down 3.5 percent compared to 2014) and the number of enterprises reporting losses accounted for 26.2 percent (up 1.3 percent), Vietnam continues to be regarded as the hot investment destination to which Japanese businesses want to expand investment. More than 60 percent of the nearly 600 Japanese companies operating in Vietnam said they wanted to expand the business, the highest rate among Japanese companies investing in 19 other countries and territories.
Explaining the issue, most surveyed Japanese companies said that the biggest advantage of Vietnam is cheap labour cost, only higher than that in the Philippines and Bangladesh. Particularly in the manufacturing industry, labour cost in Vietnam is less than half compared with Thailand, China and Malaysia. Japanese companies also provided forecasts on the impact on the investment returns of enterprises after basic wage policy is adjusted by the Government of Vietnam in the coming time. However, Japanese firms still expect changes in policies to support small and medium enterprises of the Government of Vietnam will increase the localisation ratio of auxiliary products, decrease material supply costs, help balance the cost of business investment activities of Japanese businesses in Vietnam.
Another favourable environment condition is that more than half of surveyed Japanese companies appreciated the social political situation, market size, stable growth of Vietnam. Especially the language barrier, compared to many countries which Japanese companies are investing, difficulties due to the language barrier accounted for the lowest percentage in Vietnam.
Nearly 70 per cent of Japanese businesses in Vietnam are also expected to facilitate trade and tariff when the Trans-Pacific Partnership (TPP) and Vietnam-EU free trade agreement, Vietnam-Korea Free Trade Agreements, the Asean Economic Community take effect. The advantages when accessing markets such as increasing competitiveness of the products manufactured in Vietnam when the preferential import tax rate is 0 percent, preferential rules of origin, strengthening e-commerce connection, etc are favourable conditions for Japanese enterprises to accelerate development and achieve higher profits in 2016 and the following years.
Stabilising investment
Japanese investment in Vietnam is mainly concentrated in industries such as manufacturing, retail, information technology, construction, consulting, and services. However, compared to the investment structure in previous years, the level of investment priorities for the sector has certain changes. Specifically, the rate of investment in the manufacturing sector continued to decline over the previous year. Meanwhile, the percentage of the retail distribution sector, information technology and agriculture increased slightly over the previous year. Particularly in 2015, the ratio of investment in the construction sector also increased. In addition, the number of investment projects related to service operations, such as the hotel industry, catering also increased due to the impact from the easing of foreign investment regulations for this sector since 2015.
According to JETRO, in the coming years, investment from Japan will continue flowing into Vietnam. Because many Japanese businesses said that when comparing the investment environments in Southeast Asia, Vietnam is more attractive. Currently, Indonesia has an increase in protectionist policies for domestic enterprises. Thailand made the changes in investment policy. Particularly Vietnam, especially HCM City has emerged as a potential investment environment by encouraging foreign investment and deeper integration.
However, many Japanese companies also pointed out the weaknesses of the investment environment in Vietnam today, which they believe will lead to the risk in business and investment. Over 60 percent of businesses said that Vietnam legal system is not complete, and lacks transparency in operation. And more than half of the surveyed businesses said that labour costs are rising in Vietnam, mechanisms and tax procedures are complex. Besides, the supply situation of raw materials, components of Vietnam despite improved but still slow, only reached 32.1 percent, an increase of 10 percent over 5 years. This rate is relatively low compared to other countries such as Malaysia 36 percent, Indonesia 40.5 percent, Thailand 55.5 percent and China 64.8 percent. Mr Hirotaka recommended the Government support small and medium enterprises in Vietnam to access to credit, technology and training to increase competitiveness, in order to meet the demand for spare parts for FDI enterprises in Vietnam. This is also the solution to attract more investments from Japanese companies, helping to increase internal competition for Japanese companies when choosing Vietnam as an investment destination.
PV
Vietnamese
