Japanese foreign direct investment (FDI) companies in Vietnam are looking to expand their business in the host country as they have seen increases in operational revenue. This was opined at a Japan External Trade Organisation (JETRO) meeting on Thursday.
JETRO announced results of its survey of business environment in Asia Pacific. With 458 respondents in Vietnam and over 4,700 respondents in the region, the survey reflected that there was no change in the actual percentage of profitable Japanese businesses in Vietnam (at 60 per cent), when compared to the preceding year.
This rate in line with the Asia Pacific rate, which was around 60-70 per cent.
Still the number of Japanese business, which are positive towards Vietnam has increased.
“Some 66 per cent of our companies said to raise investment capital in Vietnam. This rate is higher than many other countries in the region, indicating that Vietnam is becoming more and more popular as a destination for FDI flows,” revealed Atsusuke Kawada, chief representative of JETRO in Hanoi.
While the manufacturing sector pointed the finger to high revenue growth as the motivation to expand business, the non-manufacturing sector’s engine was “great potential” of the Vietnamese economy.
Vietnam, a developing country with 2014 GDP growth of 5.93 per cent, offers a cluster of opportunities in terms of cheap labour force, favourable habitat for Japanese staff and a stable politic condition, on which the country was given the fourth and fifth ranking among 15 nations.
However, the survey also exposed the biggest risks for doing business in Vietnam that include an incomplete and non-transparent legislation system, increasing labour costs and tax procedures.
“There is a shortage of research before establishing the laws, ushering in the challenges for FDI companies when the laws are applied and the inconsistence in implementing multiple regulations at the same time,” said Kawada. He expects tax and customs procedures will be simplified as Vietnam is about to join the ASEAN Economic Community (AEC).
“In addition, the government is making changes in the laws on enterprises and investment. I do hope the local business environment will improve as these laws take effect in July.”
Japan was the fourth largest investor in Vietnam last year, following South Korea, Hong Kong and Singapore, registering 436 projects worth over $2 billion. That made a decrease of 65 per cent over 2013. The majority of the investment projects were of small and medium scale under $5 million.
Meanwhile, due to the weakening Japanese yen, Kawada does not expect a surge in large value investment projects.