Nearly 55 per cent of Japanese firms in Vietnam gained profits despite pandemic

The Japan Trade Promotion Organization (JETRO) has just published a study of 4,600 Japanese businesses operating in roughly 20 Asia-Pacific regions, including 700 in Vietnam.

According to the findings, 54.3 per cent of Japanese enterprises in Vietnam are expected to have been profitable in 2021, up 4.7 percentage points from the previous year. While the rate of businesses that suffered losses was 28.6 per cent, it was down 1.5 percentage points from the previous year.

The rebound of Japanese firms in Vietnam, although being slightly higher compared to 2021, is still sluggish than in other nations in the area because of the adverse impact of the pandemic. In particular, over 40 per cent of Japanese firms in the south and central regions of Vietnam have seen their profitability decline as a result of manufacturing closures.

Amid fears that businesses would be irreparably impeded as a result of the strict and prolonged social distancing period, according to Takeo Nakajima, chief representative of JETRO, more than 55 per cent of Japanese businesses still want to expand their operations in Vietnam in the next 1-2 years (the highest proportion among ASEAN nations); and 42.5 per cent of businesses plan to remain at their current size while only 1.9 per cent want to trim down or close their operations.

As a result of its market size and development potential, Vietnam consistently ranks among the top destinations for Japanese companies looking to expand their operations abroad. Furthermore, as compared to other nations, Vietnam's socio-political stability and high quality of labour are distinguishing characteristics, said Takeo.

When it comes to the future of Japan's investment flow, Takeo is fairly optimistic. He believed a large number of agreements between Vietnamese and Japanese enterprises worth billions of dollars were made during Vietnamese Prime Minister Pham Minh Chinh's visit to Japan in November, particularly during his visit to Tokyo. This would be a critical precondition for any new Japanese investment projects in Vietnam.

Takeo also revealed that 39 Japanese corporations on the government's list of companies receiving aid in diversifying supply chains are in the midst of preparing equipment and relocating manufacturing lines to Vietnam.

Japanese enterprises have been more appreciative of Vietnam's transparent and favourable legal and administrative framework in the past few years. Nevertheless, according to JETRO, the score on this matter declined dramatically in 2020 and 2021, presumably as a result of the effect of strict anti-pandemic actions.