Japan - A Potential Destination For Japan’s Recovery Scenario

Japanese enterprises are seeking overseas destinations to stabilize production and business in the aftermath of the disastrous tsunami and earthquake early this year. Vietnam is one of the potential destinations on their radar.

The disruption of the local supply chain caused by the devastating earthquake has forced a number of Japanese companies to consider relocation of production facilities outside Japan. Therefore many Japanese business missions have come to Vietnam to explore business opportunities after the catastrophe in March. Meanwhile, Japanese businesses operating in Vietnam have pledged to expand investment here.

On the radar

At a Japanese investment promotion conference held in Dong Nai Province last week, Japanese investors reiterated that Vietnam remains a destination of choice and showed their intention to expand production in the country. The conference was organized by the Ministry of Planning and Investment, Dong Nai Province government and the Japan External Trade Organization (JETRO). Yoshida Sakae, director of JETRO in HCM City, said Japanese investors are turning their eyes to Asia, and Vietnam is among the destinations.

In fact, many Japanese business missions have visited Vietnam to explore opportunities over the past three months. The most recent visit is by a mission of 31 business representatives from Osaka City last month. Noritada Ito, head of the mission and chairman of Taiyo Corporation, an auto part manufacturer, said scores of difficulties after the earthquake had forced Japanese companies to turn to Vietnam as a production base to reduce cost. “The labor cost in Japan is 30 times higher than in Vietnam,” Ito said, adding that many Japanese investors appreciated the hard-working, efficient Vietnamese labor force. He forecast that more Japanese investors, especially small and medium enterprises in the supporting industries, will come to Vietnam in the coming time.

Another favorable condition for Vietnam to attract more Japanese investment is Japan’s effort to promote investment into Vietnam. Toshiyuki Obama, managing director of Nikkei Business Publications Inc., Japan’s largest media company, anticipated more Japanese investment in Vietnam, as Japanese companies have to reorganize their global production chains after the tsunami and earthquake disasters. A survey of 133 big Japanese companies shows that 40% of them have plans to expand investment overseas. Most of their targeted destinations are in Asia, and Vietnam is expected to attract more interest.

Apart from expanding investment, Japanese businesses also consider relocating production from other countries to Vietnam. Toshiba Industrial Products Asia is planning to move their factory in Dalian (China) to Vietnam.

Expanding investment

While foreign investment in Vietnam in general fell drastically in the first seven months of this year due to the global economic recession, Japanese investment in particular remained strong, as Japanese investors have pledged to continue investment and business operations here.

According to figures from the Ministry of Planning and Investment’s Foreign Investment Agency, total Japanese investment capital in Vietnam in the first seven months of this year reached US$720 million. Japan currently ranks fourth among 92 foreign investors in Vietnam. By July, Japan had 1,560 valid investment projects with total registered capital of over US$21.6 billion.

Last month, Honda Vietnam commissioned the expanded section of its second motorcycle production plant in Vietnam, raising the production capacity by 500,000 units per year. Just lately, the company has announced plans to build a third plant with annual capacity of 500,000 units, increasing the combined capacity to 2.5 million units per year. The US$120-million project has increased Honda Vietnam’s total investment capital in Vietnam to US$545 million.

Another Japanese company, Toshiba Industrial Products Asia (TIPA), is expanding production of its high-efficiency electric motor factory in Amata Industrial Park, Dong Nai Province. Keiichi Muto, TIPA general director, said the company expects to raise production capacity to 1.2 million units by 2015 to supply the global market, especially North America.

Toyotsu Vehitecs, which has been operating a representative office in HCM City for 12 years, has recently joined forces with Toyota Tsusho Corporation to open a factory to produce uniforms and work clothes in My Phuoc 3 Industrial Park, Binh Duong Province. Toshihiko Kawase, Toyotsu Vehitecs Vietnam general director, said the company had decided to invest in the factory as Vietnam has a skilled workforce and good investment environment. The factory can produce 360,000 garment pieces and 300,000 embroidery pieces a year. All the output is shipped to Japan to supply famous automakers like Toyota, Mitsubishi and Suzuki.

Besides Japanese enterprises with established operations in Vietnam, those who have yet to set foot into the country also mull investment here. Kyocera Mita Corporation, one of the world’s leading manufacturers and providers of computer-connectable peripherals, last month received an investment license for a factory in Vietnam Singapore Industrial Park in Haiphong City. The project capitalized at US$200 million will produce multifunctional printers and photocopiers and office machines. This high-tech project is expected to attract satellite producers in the supporting industries. Upon operation in October 2012, it will export products to 140 countries with annual revenue estimated at US$750 million.

Last month, the mechanical engineering company RK, a subsidiary of Nippon Kyohan Corporation, started construction of a factory to produce metal tanks in Dinh Vu Industrial Zone in Haiphong City. The US$14-million project will turn out 300-480 tons of products per year for export to Japan. Reggy Vermeulen, general director of Dinh Vu Industrial Zone Development Company, said two more Japanese-invested projects are expected to be licensed in the zone between now and the year’s end.

Business environment

Investment experts say Japanese investors are quite fastidious. So, Vietnam should be well prepared to attract them, especially to create a favorable business environment such as good infrastructure and ease of administrative procedures.

At the investment promotion conference in Dong Nai Province last week, Yoshida Sakae, director of JETRO in HCM City, said Vietnam should maintain macro-economic stability and stable supply of power to be able to compete with rivals like Thailand and Malaysia. He noted that when the ASEAN market is unified by 2015, a number of Japanese enterprises in regional countries may come to Vietnam, but some Japanese enterprises here may consider moving to other regional countries like Thailand, Indonesia and even Cambodia.

Toshiyuki Nakane, a representative from the Japanese Business Association in HCM City and Dong Nai Province, said Japanese companies operating here are concerned with infrastructure, especially the upgrading of National Highway 51, and illegal strikes.

According to investment experts, Vietnam should have incentives to attract Japanese investment in the supporting industries, which are a strong advantage of Japanese companies. They said big Japanese companies often rely on satellite enterprises to supply parts for their manufacturing operations and Vietnam should have special incentives to attract such enterprises.

In a move to improve the investment environment, the Ministry of Planning and Investment and the Japanese Embassy in Vietnam held a meeting of the Joint Committee for Vietnam-Japan Initiative, Phase 4, in Hanoi last month. (Former) Minister of Planning and Investment Vo Hong Phuc and Japanese Ambassador to Vietnam Yasuaki Tanizaki signed an action plan to carry out the initiative, which covers improvement in various areas such as power supply, human resources, macro-economic stabilization, intellectual property rights, infrastructure development and food safety. The initiative is aimed to help improve the investment environment in Vietnam and the country’s competitiveness as well as to increase the cooperation and investment relations between Vietnam and Japan. After three phases of implementation since 2003, it has helped improve significantly the investment environment in Vietnam and attract more foreign investment into the country, including investment from Japan.
Recently, the Finance Ministry has issued a circular to offer incentives for investment in the supporting industries, including the mechanical engineering, electronics-information technology, auto assembly and production, textile-garment, leather-footwear and high-tech industries. The incentives cover tax preferences, credit support and assistance in labor training.

Do Nhat Hoang, director of the Foreign Investment Agency, said Vietnamese agencies, both at the central and local levels, are drafting investment promotion programs to attract investment from Japan after the country has recovered from the tsunami and earthquake disasters.

By Quoc Hung
Business & Investment Opportunities
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