Japanese investors encourage policy improvements

69 representatives from 52 Japanese multinationals and small and medium-sized enterprises (SME) attended a meeting last week with the Ministry of Planning and Investment (MPI) to propose measures that could further enhance Vietnam’s investment environment.

“Vietnam is not the most competitive nation for foreign direct investment (FDI) at this time because of many unattractive regulations,” said Naoki Sugiura, director of corporate planning at Panasonic Vietnam.

Though Japan is the biggest source of FDI in Vietnam this year to date with $4.84 billion, 25.2 per cent of the total, investors say this pales in comparison with neighbouring countries like Thailand and Indonesia.

“From my perspective there are three issues deterring investors here. Firstly, incentives for the manufacturing industry, particularly supporting industries, are not good enough. Secondly, administrative procedures are too complicated. Finally, there is no consistency in the co-operation between state agencies,” said Sugiura.

He added that Vietnam should promote investment to Japanese SMEs to help develop local supporting industries.

“I heard Vietnam wants to attract more hi-tech investment from multinational companies, and also wants to benefit from technology transfer. But to do that you have to first develop supporting industries,” said Sugiura.

The Vietnamese government has acknowledged the importance of foreign SMEs in national development with MPI Minister Bui Quang Vinh stating in the meeting that Vietnam planned to not only focus on multinationals, but to also prioritise foreign SMEs.

In a bid to generate interest from Japanese SMEs, the two countries signed an industrialisation strategy focusing on six important industries – electronics, agricultural machinery, agricultural and seafood processing, ship building, automobile manufacturing, and environment and energy.

“Vietnam needs to build a system that creates an industrial structure with high value added elements that can be incorporated into its industrialisation strategy and an action plan for policies that will foster supporting industries, build a domestic supply chain, and expand the percentage of parts and other items that are sourced locally,” said Kohei Wantanabe, chairman of the Japan-Mekong Business Cooperation Committee and leader of the delegation to the MPI last week.

Wantanabe, who is also senior corporate advisor of the Itochu Corporation, said many Japanese SMEs want to relocate their manufacturing facilities from China and Japan to Vietnam, but were hesitant given the current investment climate.

“We are concerned by import tax refunds in Vietnam. It generally takes a long time to get a refund and this turns away SMEs as they lack financial strength,” said Mitsuhiko Lino, president of Toyo Drilube which is building a manufacturing facility in Vietnam to supply clients such as Toyota and Honda.

Tax is not the only issue. Kenichiro Nishikawa, general director of Toyota Tsusho Vietnam, said administrative procedures should be simplified and the country should focus on training human resources to attract and supply supporting industries.

“The competition between Asian nations is tough and if Vietnam fails to create favourable environment, Japanese SMEs will choose other countries to invest in,” Nishikawa added.