56.7% of Japanese enterprises surveyed said they plan to expand their business in Vietnam in the next 1-2 years, the second highest in Southeast Asia, after Laos.
This is the result of the Survey on the Status of Japanese Enterprises Investing Abroad in the 2023 Fiscal Year, announced by the Japan External Trade Organization (Jetro) in Vietnam on the afternoon of January 26. The survey was conducted from August 21 to September 20, 2023.
This rate is down 3.3 percentage points compared to the 2022 survey. Although expansion ambitions remain high, Vietnam is the only country among the six key Southeast Asian countries where the expected expansion rate has decreased.
Of all the Asia-Pacific markets surveyed by Jetro, the percentage of Japanese enterprises planning to expand their business in Vietnam is behind India, Bangladesh and Laos. Thus, after two consecutive years of Vietnam leading Southeast Asia, Laos has surpassed it to take the top spot, with 63.3% of Japanese enterprises wanting to expand.
Customers shop on the opening day of Uniqlo Hoan Kiem on November 10, 2023. Photo provided by the company
By industry group, the percentage of manufacturing enterprises wanting to expand operations is 47.1%, non-manufacturing is 65.5%. Particularly, 100% of Japanese retail enterprises in Vietnam surveyed have expansion plans.
"We have seen an increase in the number of businesses investing to expand and capture the domestic market in Vietnam. The second is the tendency for IT businesses to invest more," said Nobuyuki Matsumoto, Jetro's Chief Representative in Ho Chi Minh City.
Japanese enterprises assess Vietnam's attractiveness as a growing market with potential in the future. The next strengths are the stable socio-political situation and cheap labor costs. "Vietnam will continue to receive much attention in the China + 1 trend," he said.
However, the main risks that make them hesitant are the complexity of administrative procedures, rising labor costs, and an incomplete legal system and lack of transparency in operations. "A trend to note is that Vietnam has the advantage of cheap labor, but at the same time the risk is that costs are rising," said Mr. Nobuyuki Matsumoto. In addition, according to him, this place is "losing" to other countries in Southeast Asia in terms of infrastructure.
The percentage of Japanese enterprises that expect to make a profit when doing business in Vietnam in 2023 is 54.3%, 6.6 percentage points lower than the Southeast Asian average. The reasons are due to a decline in domestic and foreign demand, increased labor and input costs, and fierce competition with other rivals. In 2024, half of the enterprises surveyed said profits would improve. "Although exports had a difficult year, they are expected to recover in the coming time," said Mr. Nobuyuki Matsumoto.
Last year, the localization rate of Japanese companies in Vietnam increased to 41.9%. Jetro said that Japanese companies are still highly motivated to promote local procurement activities, and at the same time expect further development of the supporting industry. "In the coming time, high-quality human resources such as specialized engineers are an issue that needs attention," Mr. Nobuyuki Matsumoto recommended.
According to the General Statistics Office, Japanese investors poured nearly 6.57 billion USD into Vietnam, accounting for more than 17.9% of total investment capital in 2023 and an increase of 37.3% compared to 2022. With this result, Japan ranked second among countries and territories investing in Vietnam.
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