Japanese FDI story in Vietnam

Despite the COVID-19 pandemic, Japanese FDI in Vietnam still grows sharply, reaching a total registered capital of $63.94 billion in Q4 2021. The average Japanese project size in Vietnam is $13 million per project, higher than the national average size of $11.7 million per project. 

Currently, Japanese investment projects in Vietnam focus on 19 industries and fields, with the largest concentration on the processing and manufacturing industries. The section alone embraces 1,842 projects with a registered capital of $41.79 billion, accounting for 65.3% of total investment capital. Following is the electricity production and distribution sector with 19 projects and $7.4 billion of investment, accounting for 11.5% of total funds invested. In third place is the real estate industry, making up 10.9% of the total investment capital. According to statistics, Vietnam is evidently a strategic investment destination for Japanese investors. 

Japanese FDI trends in Vietnam

Since its establishment in 1973, Vietnam and Japan have always been maintaining a friendly relationship. Whereby, the wave of Japanese investment in Vietnam has also been constantly increasing since, supporting Vietnam for the country’s development and innovation needs. 

Mr. Shinji Hirai, Chief Representative of the Japan Trade Promotion Organization (JETRO) in Vietnam, recently shared notable points about the new investment trends of Japanese companies. Due to Hirai’s statement, Japanese investment flow in Vietnam will have a change in location as Japanese investors are looking for new possible areas besides big cities like Hanoi and Ho Chi Minh City. 

Another point he made was about an expected increase in non-manufacturing sectors. The manufacturing sector in Vietnam has been the main attraction of investment for Japanese companies due to shipping and labor advantages. However, in the future, non-manufacturing sectors having great potentials like trading and services will start to receive more investment. 

Finally, in concerns about the partnership between Japan and Vietnam, the Chief Representative of JETRO predicted gradual shifts in the priorities of Japanese companies. One of which is the promotion of partnerships with Vietnamese firms. To clarify, enterprises from Japan and in Vietnam will be building a strong collaboration with one another. While Vietnamese firms can help Japanese partners to understand the local market, Japanese companies can provide Vietnamese partners with technology and distribution channels. 

Additionally, a noteworthy trend in Japanese FDI is the investment trend of Japanese small and medium enterprises (SMEs) in Vietnam. SMEs from Japan are high-tech firms with high-quality mechanics. They are important links between Vietnam and the global production chain and reliable partners helping Vietnam in technological transformation. Hence, the presence of Japanese SMEs in Vietnam is very critical. With their help, Vietnam can gradually upgrade its private sector and approach the higher global supply chain. 

Like Hirai, Vietnamese Prime Minister Pham Minh Chinh also expressed great interest in positive and timely modifications in the Japanese investment direction. The COVID-19 pandemic has affected the trend of investment in most countries. Thus, thanks to the Vietnamese government’s great efforts in containing and controlling the outbreak, the Japanese companies operating in Vietnam can continue to expand their business with assurance. According to JETRO's survey of the current situation, roughly 65% of Japanese enterprises doing business in Vietnam have plans to extend their market share. With all this evidence, in general, recent changes in Japanese investment trends have been in line with Vietnamese orientation to attract high-quality FDI. 

Potential for future collaboration

A study by JETRO shows that among nations in the region,  Vietnam contains the highest percentage of Japanese companies planning to continue expanding their business. The survey took place during strict social measures implementation with many negative factors affecting the Vietnamese business environment. Nevertheless, the results show that the Vietnamese economy still receives great attention from Japanese investors. Companies in Vietnam have high hopes for increased export revenue and raised revenue in the host country.

In the field of trade and production, in the first 10 months of 2021, Vietnamese Customs reported that bilateral trade increased by 6.4% on a year-on-year basis to $34.4 billion. This outcome is an achievement of the Regional Comprehensive Economic Partnership (RCEP), the world’s biggest trade deal among 10 members of ASEAN and 5 other partners in the Asia continent. As part of the agreement, tariffs will be eliminated on 91 percent of goods. In addition, common rules will be established on investment and intellectual property to encourage trade. 

With this new deal, business exchange between Japan and Vietnam has been taken to a new level. Japanese brands, including Toyota and Mitsubishi, were the biggest sellers among imported cars in Q1 2022. Toyota sold 11,661 completely built units, while Mitsubishi imported 7,797. Following were Honda, Mazda, and Suzuki. Particularly, in the past year, Toyota’s sales reached more than 69,000, leading the Vietnamese passenger car market. Furthermore, components and accessories export also hit $70,8 million, increasing by 38% compared to the year 2020. Toyota Vietnam in the last year alone contributed more than $1 billion to the state budget. 

Beside mentioned accomplishments, Vietnam's non-manufacturing industries such as retailing, education, healthcare, energy, finance, insurance, transport, and among others saw an increase in Japanese investments. While input costs and labor costs have risen in Vietnam over the past few years, they are still relatively low compared with those of Japan. As a result, many Japanese firms in the IT and retailing sectors, which generally post higher labor costs, are growing and intending to expand their business in Vietnam. Moreover, Vietnam's fast-growing population, strong economy, and improved standard of living make services, equipment, and consumer goods industries have great potential for growth. 

As a response to the positive changes in economic cooperation between Vietnam and Japan, Vietnamese Prime Minister Pham Minh Chinh and Japanese Prime Minister Kishida Fumio agreed that the opportunities for collaboration between Vietnam and Japan are unlimited. The two economies are highly complementary and compatible in many aspects, especially in technology innovation, digital transformation, and supply chain diversification. Accordingly, in the near future, the Vietnamese government will continue to implement policies supporting and attracting Japanese enterprises to scale up investment in Vietnam. 

Dynamic and fertile as the Vietnamese business environment is, Japanese SMEs entering Vietnam’s market sometimes face challenges due to the inability to access investment property or to predict future policy amendments. Understanding these challenges, Viettonkin Consulting was founded with the aim to navigate foreign enterprises through this inspecting and adapting process. If you are an investor looking for new opportunities in the Vietnamese global economy, contact us now to get help from a team of experts in the field.