Japanese firms remain optimistic about Vietnam growth

In a report released in Hanoi on Monday, JETRO said 25.6 per cent of Japanese firms operating in Vietnam saw losses last year, a 6.1 per cent increase compared to the previous year with 19.5 per cent. Around 60 per cent of respondents reported profits.

“This means that one in three Japanese companies operating in Vietnam are reporting losses,” said Atsusuke Kawada, head of Hanoi’s JETRO office.

Regional countries see similar results with 60-70 per cent of Japanese firms reporting profits. Thailand holds 72.4 per cent, Indonesia 64.8 per cent, and China 60.7 per cent. These results are considered solid amid a difficult global economy.

According to Kawada, the report showed export processing enterprises outperformed others with only 19.4 per cent reporting losses while the rate for enterprises in other sectors was 32.8 per cent.

“The reason for greater inefficiencies in enterprises not operating in export processing zones are likely to be focused on the domestic market as Vietnam’s economy faced low consumption troubles in 2013,” Kawada explained.

In fact, not only Japanese but also Vietnamese and other foreign invested enterprises (FIEs) operating with export advantages have greater returns. Vietnam’s economic growth reached 5.42 per cent last year, partly due to high export growth and a total value of $132 billion. Among FIEs operating in Vietnam, Japanese firms contributed up to 60 per cent of the total export turnover for the foreign invested sector.

Kawada said that in the coming time Japanese firms would continue to emphasise export processing.

“For Japanese enterprises, Vietnam’s advantages are not only cheap labour but also its export strengths compared to other ASEAN nations,” he added.

The JETRO report also showed that up to 33.9 per cent of Japanese respondents considered export processing the main business activity in Vietnam. This rate is significantly higher than Thailand’s 3.8 per cent, Indonesia’s 8.8 per cent, China’s 7.8 per cent and Malaysia’s 12.3 per cent. This also means that not many Japanese firms focus on the domestic market.

According to JETRO, Japan is the single largest foreign investor in Vietnam with over 2,000 projects valued at $34.6 billion. Last year alone, Japanese investors pledged $5.7 billion to the country.

A recent survey revealed that up to 70 per cent of Japanese investors planned to expand their operations. If this comes to pass, Vietnam would overtake regional rivals such as Indonesia, Thailand and the Philippines in the race to lure Japanese investments.

Most of the Japanese respondents placed a high value on Vietnam’s growth potential, social and political stability and inexpensive workforce. Many companies plan to build more factories in Vietnam and expand operations outside major industrial parks.