Japanese, Vietnamese firms envision growth opportunities as trade relations tighten

Japanese Prime Minister Yoshihide Suga’s choice of Vietnam as his first overseas destination after taking office shows that "Vietnam is one of the most important countries for Japan in the world," said Takahisa Onose, a Japan business services partner with auditing firm Ernst & Young Vietnam. Onose has been working in Vietnam for nine years.

Among 30 Japanese companies that were selected to be subsidized to increase production in Southeast Asia, 15 have chosen Vietnam to establish or expand their business, and this is proof that Japanese companies are paying increasing interest in doing businesses in Vietnam, he told VnExpress.

Several Japanese retail companies like Uniqlo and Muji are seeking to expand their operations in Vietnam. Last week, Japan’s largest cosmetic and pharmaceutical store chain Matsumoto Kiyoshi established its first outlet in Ho Chi Minh City.

Japan’s largest retail chain AEON also considers Vietnam a key market and plans to have 25 malls in the country by 2025 with an investment of up to $2 billion.

Nishitohge Yasuo, CEO of AEON Vietnam, said that Vietnam’s advantages are a high GDP growth and a large population (up to 100 million by 2025) with rising income.

The country’s ratio of modern retail sales area per capita is lower than other countries, he added.

Other industry insiders say Vietnam’s young labor population is another perk as this year marks the 11th consecutive year that Japanese population has decreased.

Furthermore, data from Goldman Sachs shows that Vietnam has competitive labor costs with the minimum wage in Hanoi and HCMC at $190 per month compared to $360 in China’s Shanghai.

The several free trade agreements that Vietnam has signed can also help it avoid the impacts of rising protectionism around the world, thereby making it a safe haven for multinational manufacturers. Its shared border with China is also an advantage.

These factors are why Japanese companies have been increasing their presence in Vietnam. The East Asian giant had 4,600 active direct investment projects in Vietnam as of September with a total registered capital of nearly $60 billion, ranking second behind South Korea.

A report last year by the Japan External Trade Organization (JETRO) showed that 66 percent of Japanese firms were making profit in Vietnam and 64 percent planned to expand their presence in the country.

Vietnam’s success in containing the novel coronavirus is another plus for Japanese firms looking to invest or expand operations htere.

Shimizu Akira, chief representative of the Japan International Cooperation Agency Vietnam Office (JICA), said Vietnam has so far been able to achieve its two goals of keeping the Covid-19 situation under control and maintaining economic growth at the same time, while Japan still records around 500 new cases each day.

Mutual benefits

For Vietnamese businesses, too, Japan presents a market full of potential.

Vu Ba Phu, director of the trade promotion agency under the Ministry of Industry and Trade, said the two countries have a supportive trade relationship as Japan has high demand for agriculture, seafood, garment and footwear products, which are Vietnam’s key export items, while Vietnam needs high-tech goods from Japan.

Japan’s imports from Vietnam only account for 3.1 percent of its total, and this means there is a lot of room for growth, he said.

"Many Japanese companies have been establishing their plants in Vietnam to export products back to their country in recent years," he added.

For example, exports of AEON from Vietnam to Japan increased from $250 million in 2017 to $370 million last year. This includes garments and agriculture produce like coffee and fruits.

However, Japanese businesses expect further improvements in the business environment in Vietnam, experts say.

Akira of JICA said that Vietnam needs to provide more intensive training to its labor force so they can participate in high-skilled manufacturing operations.

"Training a new generation of workers with high skills and expertise is a key task for now," he said.

Other challenges for Japanese firms include the lack of transparent administrative procedures and loose implementation of laws and regulations in Vietnam.

Phu of the trade ministry said Vietnamese exporters should raise their product standards to meet Japanese consumers’ demands, like greater hygiene in food exports.

Punctuality, professionalism and a thorough understanding of Japanese culture are other factors that Vietnamese exporters need to gain the trust of Japanese partners, he added.

During his official visit to Vietnam ending Tuesday, Japanese PM Suga signaled intent to strengthen economic relations with Vietnam by signing 12 agreements to boost ties in economy, environment, public infrastructure, healthcare, agriculture, and energy.

The two countries have agreed to restart two-way flights as they deal with Covid-19 impacts.