Executive Summary
Vietnam has painstakingly developed itself from a war-torn country into one of the world’s top 35 economies. Vietnam has been recognised as an established economy within East Asia, yet Vietnam’s rapid and continued growth holds promise for a significantly larger economy in the years ahead. This has been enabled by strong policy support from Vietnam’s government, who are sensitive to high potential sectors and have quickly directed resources to their development. Vietnam’s continually strengthening relationship with Japan opens more markets and sectors for free trade and cooperation, paving the way for long term mutual benefit.
Why Vietnam Matters To Japan
Latest Relationship
Vietnam and Japan have a long history of diplomatic relations, starting from 1973. Since the beginning, the two countries relations have only taken an upward trend, with some notable milestones being the Vietnam-Japan Economic Partnership Agreement (VJEPA) in 2009, the Regional Comprehensive Economic Partnership (RCEP) in 2020, and most recently, the elevation of the partnership in 2023 to a Comprehensive Strategic Partnership, which marks an all-time high in Japan-Vietnam relations. In practice, Japan is Vietnam’s top provider of Official Development Assistance (ODA), has more than 5000 investment projects in Vietnam, and has invested nearly 80 billion USD in capital. Japan’s Prime Minister Takaichi Sanae recently visited Vietnam from 1-3 May, which Vietnamese ambassador to Japan Pham Quang Hieu commented to carry significant importance, and demonstrate Japan’s high regard for the Vietnam-Japan Comprehensive Strategic Partnership. It should also be noted that Vietnam is the first country in the region that PM Takaichi visited since her re-election, showing the special relationship that Japan has with Vietnam. Discussions are expected to center around high priority areas that align with each country’s strength. Key areas are:
- Innovation in science and technology
- Semiconductor production
- Artificial intelligence
- Green transition and energy cooperation
- Smart and high-tech agriculture
- Making resilient supply chains stronger
Government Policies
The Vietnamese government has consistently signalled their pro-investments stance, and the policies enacted reflect their wish to attract more foreign direct investments. Japan has recognised the enormous benefits of a partnership with Vietnam, and many Japanese firms have invested into Vietnam, benefitting both countries. Both countries have cemented this economic partnership through trade agreements such as VJEPA, RCEP, ASEAN-Japan Comprehensive Economic Partnership (AJCEP), and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). While only the first partnership is solely between Japan and Vietnam, yet this is evidence of the undoubtedly strong commitment between Japan and Vietnam to aid in each other’s economy and development, far into the future.
Alternative to China
Vietnam commands a strategic position in the region. Geographically, Vietnam controls a coastline of over 3000 km, and is embedded into major maritime trade routes travelling through the South China Sea. This puts Vietnam in an important position in one of the busiest shipping corridors globally. Vietnam has also positioned itself as the partial successor to China’s former role as a low cost and efficient manufacturing hub for labor-intensive, export-oriented products. This presents Vietnam as a viable alternative to China, as China shifts towards skill-intensive manufacturing, losing some of its price competitiveness in labor-intensive manufacturing.
Vietnam’s strengths as an alternative to China do not end there. Vietnam has leveraged its strengths in manufacturing, and is now a key part of global supply chains. Diversification in sources of supply have become all the more important, after seeing China close itself off globally during the Covid-19 pandemic, disrupting supply chains. This taught the valuable lesson that too much reliance on one particular source of supply is not a prudent business strategy. Lastly, Japan’s China+1 policy announced in 2008, puts Vietnam at the forefront for Japanese firms looking to invest abroad.
The policy was created with the intention to reduce reliance on China, by shifting manufacturing and supply chains out of China, while not leaving China entirely. Vietnam’s geographical proximity to China presents Vietnam as the perfect location to fulfil this purpose, and Vietnam’s position is further strengthened by the Vietnamese government’s stability, forward-lookingness, and openness to FDI.
Economic Strategy
Vietnam and Japan also share an economic synergy, which both parties have been taking full advantage of. Former Vietnamese Prime Minister Pham Minh Chinh noted that Vietnamese strengths compliment Japanese shortages, and vice versa. Japanese firms struggle with an ageing workforce, while seeking cost-effective labor and new avenues for growth. Both Vietnam and Japan have been, and continually intend to leverage their complimentary strengths and weaknesses. Vietnam offers a young workforce relative to developed economies, who is also cost-competitive, as well as many industries with ample capacity for growth, fueled by funding from the government. Japanese firms bring technology and expertise and inject the capital that Vietnamese provinces seek, facilitating knowledge transfer with Vietnamese workers. Japanese firms boast a long history of investments in Vietnam, the majority of which are profitable, thus warranting more inflow of FDI. Japanese firms will benefit greatly by aligning their long-term strategy with the many incentives and advantages that Vietnam offers.
Key Investment Opportunities
Electronics Manufacturing & Artificial Intelligence
Vietnam has emerged as one of the premier hubs for electronics and semiconductor manufacturing. In 2025 alone, Vietnam attracted more than 170 FDI projects and almost 11.6 billion USD of capital into the semiconductor industry. Vietnam recognises the potential for growth and in late 2024, decree 182 was passed, encouraging foreign investment into semiconductors and artificial intelligence. Firms investing into the research and development of semiconductors or artificial intelligence can receive financial support from the Vietnamese government for up to 50% of initial costs. This is attractive for Japanese firms, who are seeking out new opportunities for growth, or considering expanding abroad.
Vietnam’s key position within global supply chains, combined with Vietnam’s rapidly developing semiconductor and artificial intelligence industries means that in the long term, Vietnam will be a major player in these industries globally. Semiconductor and artificial intelligence are long-term investments, and Japanese investors can have assurance that their investments will have the opportunity to mature, given the Vietnamese government’s stability, long-term vision, and commitment to these industries. Successful investments mean high returns in sectors of AI application, smart manufacturing, cloud infrastructure, and many more.
Renewable Energy Infrastructure
Vietnam is also rapidly emerging as Southeast Asia’s leader in renewable energy. The National Power Development Plan 8 (PDP8) announced in 2023 reflects strong policy support from the government to drive the development of renewable energy production infrastructure. While the policy has seen success in attracting investments into the development of renewable energy production plants, the market gap of energy transmission still persists. This bottleneck hurts profits, and hinders the economy from reaping the full benefits of renewable energy. However, this also presents a market opportunity. Japanese firms boast experience in energy engineering and grid management technologies putting them in a prime position to capitalise. Firms can also consider developing both energy harvesting infrastructure as well as energy transmission infrastructure concurrently to fill the market gap and secure a significant market share, thus cementing their position in the market in the long term.
Logistics & Supply Chain Infrastructure
Ecommerce is an emerging market in Southeast Asia, with the rising popularity and profitability of ecommerce platforms such as Shopee, Lazada, TikTok Shop, and Facebook Marketplace. Vietnam is witnessing a growing middle class, as well as increasing consumer trends. Combined with Vietnam’s strategic geographical location and long coastlines, this means that large amounts of ecommerce will be flowing into and through Vietnam. Additionally, the Vietnamese government is aiding this sector’s development through policy support.
In October 2025, the Logisitics Services Development Strategy was announced, outlined under Decision No. 2229. This aims to improve infrastructure, reduce costs, and expand high-value services, to drive growth in the sector. Given Japanese firms’ advantages in logistics efficiency and expertise in transport infrastructure, this provides a valuable opportunity for long-term growth as well as technology advancement. Firms can expect to construct logistics bases that adequately meet local and global demand for logistics and supply chain services.
Key Considerations
Navigating Regulations
Investors would be prudent not to go into a foreign country blindly. Despite the promises for attractive returns and profitability, it cannot be realised if the government does not permit these economic activities. Acquiring licenses and navigating the boundaries of regulations can be complex and time-consuming to understand, especially in an unfamiliar foreign setting. Investors may not be aware of the differences in regulations across different provinces in Vietnam, may not fully understand administrative procedures to acquire licenses and permits, and may face various other obstacles. Engaging with an established local consultancy that comprehensively understands the needs and objectives of investors is the safe and efficient route to take.
Skilled Labor Development
Vietnam, being a developing economy, means that the workforce is too, still developing. Firms will not enter and find an already trained and competent workforce to carry out the more advanced and skill-intensive roles. Firms must be prepared to invest time and resources into the training of skilled workers to perform the more complex roles. Yet, the onus is not entirely for firms to bear. The Vietnamese government has recognised this gap, and has taken policy actions to address it.
The Vocational Education Development Strategy is designed to reform the curriculum of vocational education, ensuring that the skills taught remain relevant and translate well into the workplace. Additionally, Vietnamese workers have been benefitting from the transfer of knowledge and technology from large Japanese firms such as Toyota and Panasonic, over their long span of investment and presence in Vietnam. Firms can be assured that if their plan is to operate in Vietnam for the long-term, the costs spent on developing skilled workers will yield much greater returns.
Conclusion & Recommendations
Vietnam is an attractive investment destination to firms all over the world because Vietnam has already solidified its position regionally, and has embedded itself into global supply chains. On top of this success, Vietnam still has many sectors with ample room for development, offering to firms worldwide the opportunity to expand and capture new markets for growth. Vietnam and Japan’s economic relationship takes this one step further, as Vietnam’s strengths address the gaps of Japan’s weaknesses, and vice versa. Both countries recognise this, as is evident from the long and prosperous economic relationship that both countries enjoy. However, investments in Vietnam will only turn a profit if entrant firms are prepared to commit for the long term.
The initial costs of setting up operations in Vietnam will require considerable time and resources, but firms can rely on the government’s policy support to expedite the process. Firms can then expect to see long term returns on their investments, and enjoy the benefits of an emerging and profitable market overseas. Vietnam’s investment environment is moving quickly, and Japanese firms that commit early are best positioned to capture both the incentives and the market share.
Viettonkin Consulting brings deep local knowledge and a proven track record of supporting Japanese investors through every stage of market entry, from regulatory approvals to operational setup. Get in touch with our team to start planning your Vietnam strategy.
Read more: Ensuring Regulatory Continuity and Protecting Investor Interests During Periods of Transition
