Survey: Japanese companies plan to expand in Vietnam

The findings of the survey of 20 markets entitled ‘Business Condition of Japanese Companies in Asia and Oceania 2015’ were released by JETRO senior officials at a recent seminar in Hanoi.

The survey, conducted from October to November of last year, includes the opinions and views of 4,635 Japanese companies operating in the region, including 557 of those with operations in Vietnam.

In a keynote address at the seminar, Chief Representative Atsusuke Kawada of JETRO in Vietnam said the expansion outlook of the respondents with business operations in the Southeast Asian nation is the highest in the region.

Mr Kawada said Indonesia, Thailand, the Philippines, China, and Malaysia round out the top five countries in the survey for expansion outlook, with percentages of 52, 49, 55, 38 and 45, respectively.

The survey indicates the main reason companies are sanguine on expanding operations is that 85% of them report revenue growth over the past year and are optimistic for further growth in 2016.

For 2015, nearly 60% of the those responding report earnings (down 3% compared to the prior year’s survey) with the remaining 40% reporting losses for the year.

The number of companies doing business in Vietnam reporting earnings in 2015 is 326.

Vietnam ranks third in ease of recruitment of employees, with respondents saying "market scale and growth ability" and the "stable social-political situation" of the country, are positive factors.

The responses show that respondents report Vietnam's labour costs are relatively low in comparison to other markets.

For example, labour costs in the manufacturing sector are less than a half of that in China, Thailand and Malaysia.

Roughly 80% of Japanese firms doing business in Vietnam cite an "increase in employee wages," over the past year.

In term of risks, 60% of the survey respondents said administrative formalities, customs formalities, the tax system, laws and increasing wages in Vietnam pose the greatest risk to them.

Vietnam's localization rate, or the percent of raw materials and intermediary goods that can be sourced locally, is 32%, down 1% from the prior year’s survey. This rate is higher than the Philippines (26%).

However, it is much lower than China, Thailand, Indonesia and Malaysia, which are 65%, 56%, 41 %, and 36%, respectively.

Mr Kawada suggests that in order to increase competitiveness in terms of cost, Vietnam should strengthen its localization rate facilitating cost reduction for Japanese companies and thereby increasing profitability.