Half of Japanese firms in Vietnam seek expansion

Vietnam had previously topped the ranking for two consecutive years.

According to a survey on the status of Japanese firms investing abroad in the fiscal year 2023, announced Friday by the Japan Trade Promotion Organization (JETRO) in Vietnam, the rate of 56.7% was 3.3 percentage points lower than the results of the same 2022 survey.

Among all Asia-Pacific markets that JETRO surveyed in 2023, the rate of Japanese companies planning to expand business in Vietnam was also behind India and Bangladesh.

Regarding sectors, 47.1% of surveyed Japanese manufacturing firms wanted to expand operations in Vietnam, and the respective rates for non-manufacturing companies and retailers were 65.5% and 100%.

"More Japanese businesses are investing to expand and dominate the Vietnamese market. Information technology businesses are tending to invest more," said Nobuyuki Matsumoto, chief representative of JETRO in Ho Chi Minh City.

Japanese businesses evaluate the attractiveness of Vietnam as a growing and potential market in the future. Its other strength is the stable socio-political situation and cheap labor costs.

However, there are complicated administrative procedures, increased labor costs and an incomplete legal system that lack transparency, he said.

The rate of Japanese firms expecting profit from their business in Vietnam in 2023 was 54.3%, some 6.6 percentage points lower than the Southeast Asian average.

The cause was a decline in domestic and foreign demand, increased labor and input costs, and fiercer competition.

Half of surveyed Japanese companies said profits would improve in 2024.

"Although exports had a difficult year, they are expected to recover in the coming time," Matsumoto said.

Last year the localization rate of Japanese companies in Vietnam surged to 41.9%. JETRO said the companies still have high motivation to strengthen on-site purchasing, and at the same time expect the further development of the supporting industry.

"In the coming time, high-quality personnel such as specialized engineers will be an issue that needs attention," Matsumoto said.

According to the General Statistics Office, Japanese investors poured US$6.57 billion into Vietnam, accounting for 17.9% of total FDI in 2023, an increase of 37.3% against 2022, ranking second among countries and territories investing in the country.