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Japanese companies in Vietnam: A shift in investment trends

Japanese companies in Vietnam: A shift in investment trends

Tuesday 08, 06 2021
Vietnam is witnessing a change in the trends of investment from Japanese companies

Japan – Vietnam economic relations

Vietnam and Japan have had a strong relationship since its establishment in 1973. In November 1992, Japan reestablished their donation of ODA to Vietnam, and since then has been supporting Vietnam non-stop for the country’s improvement and innovation needs.

The two countries signed the Investment Promotion and Protection Agreement in December 2004, the Vietnam-Japan Economic Partnership Agreement (VJEPA) in October 2009, creating a favorable legal framework. for the development of economic and trade relations between the two countries.

Signed the Investment

Japan is Vietnam's leading economic partner and was the first G7 country to recognize Vietnam's market economy status in October 2011.

As of 2014, Japan is the largest ODA donor of Vietnam, ranked as the second-biggest investor in Vietnam and the 4th largest trading partner of Vietnam.

Currently, Japan is actively supporting Vietnam to implement the Action Plan attached to Vietnam's Industrialization Strategy within the framework of Vietnam-Japan cooperation towards 2020 with a vision to 2030.

Investment trends of Japanese companies in Vietnam

The wave of Japanese investment in Vietnam is constantly increasing in both the number of businesses and investment capital. Specifically, in 2018, Japan topped the countries investing in Vietnam with 8.59 billion USD, accounting for 24.2% of the total investment capital among 112 countries and territories having investment projects in Vietnam.

Countries investing in Vietnam

As of the end of 2019, more than 2.000 Japanese enterprises had invested in Vietnam, and foreign direct investment (FDI) flows from Japan are continuing to increase strongly. As for FDI attraction by the end of 2019, Japan ranked second with a total registered capital of 59.3 billion USD, accounting for 16.7%. This shows that Japan has always been an important investment partner of Vietnam after almost five decades of establishing diplomatic relations.

Mr. Shinji Hirai, Chief Representative of the Japan Trade Promotion Organization (JETRO) in Vietnam, said that "Vietnam used to be mainly chosen by Japanese enterprises as a place to manufacture goods, but now it has become a market for goods and services." Specifically, Vietnam has ranked 5th in the top 10 import markets for agro-forestry-forestry products with sales of 53.5 billion Yen in 2020.

Mr. Shinji hirai

The trend of Japanese businesses bringing products and services to the Vietnamese market is increasing, instead of just being an investment destination for the manufacturing industry many years ago. If in previous years, the survey of JETRO showed that about 40% of enterprises in Japan investing in Vietnam to open production factories, the results of this survey are now only about 20%.

Mr. Hirai shared three notable points in the new investment trends of Japanese companies as follow:

  • Changing investment location: Besides the big cities like Hanoi and Ho Chi Minh city, Japanese investors are also looking into neighboring areas as new possible destinations.

  • An increase in investment in non-manufacturing sectors: As stated, the manufacturing sector in Vietnam has been the main attraction of investment for Japanese companies. However, non-manufacturing sectors such as trading and services will receive more investment in the future.

  • Partnership between Japan and Vietnam: Priorities of Japanese companies are changing gradually. One of which is to develop partnerships with Vietnamese companies. Enterprises from Japan and in Vietnam will be building a strong partnership to develop 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.

The COVID-19 pandemic has affected the trend of investment for most countries. Up to this point, Vietnam has been very successful in containing and controlling the COVID-19 pandemic. Therefore, Japanese companies operating in Vietnam highly appreciate the national risk management ability of the Vietnamese Government, making Japanese businesses trust and expand their business in Vietnam.

According to JETRO's survey of the current situation of Japanese businesses investing in Asia and Oceania in February 2020, 63.9% of Japanese enterprises doing business in Vietnam will continue to expand their business, the highest rate in ASEAN and third in Asia and Oceania.

In the coming time, Vietnam will continue to improve institutions and policies to improve the quality and efficiency of foreign investment cooperation, preparing to embrace the new trends of investment from Japanese companies.

 

Compiled by VietnamCredit

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