Three Reasons Japan Invests in Vietnam

In accordance with the statistics from the Ministry of Planning and Investment (MPI), accumulating to the end of May 2014, Japan is still the leading investor into Vietnam, with more than USD 35,57 billion registered for investment. Following Japan are Korea and Singapore, with the respective gross figures of USD 31,01 billion and USD 30,33 billion.

The gross FDI capital invested into Vietnam from Japan is not significant larger than investment from Singapore and Korea .  However, taking into consideration of the economic potential of Japan and Japanese companies which are perceived much higher than Singapore and Korea’s counterparts, it appears that the FDI from Japan has a lot potential.

The MPI expects the FDI capital from Japan might increase strongly in the next period. A few investment sectors which Japanese business shall keep on focusing in the next period are the pharmaceutical and chemical industry, steel and metal production, machine in general and other electronic devices, devices of transportation sector, wholesale and retail.

The reasons for the above mentioned expectation are:

First, after many natural catastrophes such as earthquakes, tsunamis, Japanese businesses has acknowledged that focusing too much in one investment location might has its risks. Therefore, to diversify the investment is to divide the risks, too. Many Japanese companies have been identifying the new destinations for investment.

Second, China has always been one of the most FDI-attractive nations of Japan.  But the increasing cost for labour and in contrast the decrease in incentive from Chinese Government for foreign investors, along with many tensions between Japan and China regarding border and territorial issues have been cooling down the interest of Japan investors. Pursuant to the annual survey report of the Commercial Promotion Agency of Japan, for production companies of Japan currently operating in Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam and India, with the relocation of investment destination, amongst those above mentioned nations, Vietnam has been rated best by most Japanese companies, with the percentage of 20,5%, 2,8 times higher than the nation in the following spot which is Thailand.

Third and finally, the commitment on strategic partnership and the implementation of incentives attracting investment, such as the establishment and development of the Industrial Zone for business supporting industry in Ba Ria – Vung Tau and HaiPhong, shall come fruity in the near future.

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Why Japanese Companies will Increase Investment into Vietnam

When Japan sought to diversify the investment other than to China, Vietnam emerged as attractive destinations for international investors.

Within the last few years, companies doing business in China began diversifying its investment and reduce dependence on the China market. This is the result of increasing labor costs as well as the structural reforms taking place in China. In this context, Vietnam emerged as a potential destination for foreign companies which are looking for new investment opportunities.  Entering into Vietnam will open up open up a large domestic market at a geographic advantage location for Japanese companies.

In 2013, for the first time, China lost the top spot as a promising destination for Japanese investors. Japanese companies are now investing in Indonesia, India, Thailand and Vietnam. This does not mean that Japanese firms will withdraw from China, they are simply looking for new investment destinations.

Vietnam has increasingly become popular for Japanese companies making investment. The Japanese investment in Vietnam has increased rapidly, especially since the Treaty of the Economic Partnership Vietnam-Japan went into effect in 2009. The Japan’s largest investment are in transportation infrastructure transportation, electrical equipment manufacturing sector. Vietnam is one of the fourth largest motorcycle markets in the world, and therefore Japanese companies such as Honda or Yamaha are here to increase investment. The Japanese electronics company also raised the capital of investment, partly because Samsung has developed a mobile plant to produce a series of Galaxy smartphones. Panasonic is looking for business opportunities in the domestic electrical equipment and has seen Vietnam as a key market in the emerging countries. Teral, a leading Japanese industrial pumps and fans have just opened up its Vietnam office.  Canon has been investing in Vietnam for many years with success.  For the non-manufacturing sectors such as finance and insurance industry, capital investment has also increased significantly, for instance, Mizuho, Tokyo and Mitsubishi in banking, Dai-ichi Life in life insurance.

In addition, small and medium enterprises in Japan (SMEs) are looking for business opportunities in foreign countries due to increasing challenges they are facing in Japan. The domestic market has been shrinking due to aging population; larger companies that have contracts with the SME business are moving abroad, while competition with foreign companies in Japan has been increasing. After the global financial crisis of 2008, the Japanese companies have increased investment abroad to survive. Therefore, Vietnam should promote measures to adapt to small businesses from Japan.

In addition, both Vietnam and Japan are engaged in the process of negotiating Trans-Pacific Partnership (TPP). At the end, the TPP will help promote trade and investment, but it also leads to changes in the industrial structure and the domestic economy. It will be a challenge, especially for a developing country like Vietnam. In this context, Vietnam and Japan is an important partner of the other. Both countries will benefit from the closer economic relationship and cooperation.

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Three Reasons Japan Invests in Vietnam

In accordance with the statistics from the Ministry of Planning and Investment (MPI), accumulating to the end of May 2014, Japan is still the leading investor into Vietnam, with more than USD 35,57 billion registered for investment. Following Japan are Korea and Singapore, with the respective gross figures of USD 31,01 billion and USD 30,33 billion.

The gross FDI capital invested into Vietnam from Japan is not significant larger than investment from Singapore and Korea .  However, taking into consideration of the economic potential of Japan and Japanese companies which are perceived much higher than Singapore and Korea’s counterparts, it appears that the FDI from Japan has a lot potential.

The MPI expects the FDI capital from Japan might increase strongly in the next period. A few investment sectors which Japanese business shall keep on focusing in the next period are the pharmaceutical and chemical industry, steel and metal production, machine in general and other electronic devices, devices of transportation sector, wholesale and retail.

The reasons for the above mentioned expectation are:

First, after many natural catastrophes such as earthquakes, tsunamis, Japanese businesses has acknowledged that focusing too much in one investment location might has its risks. Therefore, to diversify the investment is to divide the risks, too. Many Japanese companies have been identifying the new destinations for investment.

Second, China has always been one of the most FDI-attractive nations of Japan.  But the increasing cost for labour and in contrast the decrease in incentive from Chinese Government for foreign investors, along with many tensions between Japan and China regarding border and territorial issues have been cooling down the interest of Japan investors. Pursuant to the annual survey report of the Commercial Promotion Agency of Japan, for production companies of Japan currently operating in Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam and India, with the relocation of investment destination, amongst those above mentioned nations, Vietnam has been rated best by most Japanese companies, with the percentage of 20,5%, 2,8 times higher than the nation in the following spot which is Thailand.

Third and finally, the commitment on strategic partnership and the implementation of incentives attracting investment, such as the establishment and development of the Industrial Zone for business supporting industry in Ba Ria – Vung Tau and HaiPhong, shall come fruity in the near future.

Read More