VietNamNet Bridge – Most Japanese companies operating in China and Thailand would pick Vietnam if they expand or relocate investments over considerations of labor costs and investment climate, heard a conference in HCMC last Friday.

Satochi Mukuta (R), senior managing director at Keidanren, gestures while talking to HCMC vice chairman Le Thanh Liem on the sidelines of a conference here in the city last week – Photo: Quoc Hung

Hirotaka Yasuzumi, managing director of the HCMC office of JETRO, cited a recent survey of JETRO as saying at the conference on Vietnam-Japan investment and trade promotion that most Japanese enterprises surveyed wanted to set up shop in Vietnam as part of their Thailand plus one strategy.

Initially, Japanese firms in Thailand selected Cambodia and Laos as the next destinations for their expansion and relocation plans but more have chosen Vietnam, Yasuzumi said.

Similarly, Japanese enterprises in China have adopted their China plus one strategy and among Southeast Asian countries Vietnam is their choice.

JETRO’s survey showed Japanese companies started to restructure their local and foreign production facilities a couple of years ago. Around 595 out of over 3,470 firms surveyed said they have plans to restructure production in the next two or three years and move a total of around 780 projects. Around 52.2% of the total are planning to shift to ASEAN countries, with Vietnam accounting for almost half.

More Japanese enterprises are planning to relocate their operations from China to a third country due to rising labor costs and a number of barriers in China, Yasuzumi told the conference attended by 50 Japanese firms active in HCMC, and of the Japan Business Federation (Keidanren) and nearly 30 other businesses from Japan.

Vietnam’s advantages are young laborers with lower labor costs than those in China and Thailand. With more than 90 million consumers, Vietnam is the third biggest market in Southeast Asia, according to many Japanese businesses.

According to the HCMC Department of Planning and Investment, compared to major regional cities, HCMC has lower labor, electricity and water costs. The costs of skilled labor, electricity and water in HCMC are around US$440 per person per year, US$0.09 per kWh and US$0.43 per cubic meter of water respectively, two to three times lower than in Manila (the Philippines) and Guangzhou (China).

According to JETRO, 62.3% of Japanese enterprises operating in Vietnam reported profits last year compared to 59.9% of 2013. Up to 66% of them had plans to expand operations and considered Vietnam a worthwhile investment destination.

Japanese Consul General in HCMC Nakajima Satoshi said more Japanese enterprises will invest in Vietnam in the coming years.

Satochi Mukuta, senior managing director at Keidanren, said Japanese firms regard Vietnam as a gateway to the ASEAN market.

When the ASEAN Economic Community is launched late this year, Vietnam’s role will become more important and the country will be a major business base in the global supply chain, according to Mukuta, who was leading a Japanese business delegation to Vietnam to explore investment and business opportunities.

In HCMC, Japan has 788 valid projects worth a combined US$2.72 billion. Japanese firms are involved in real estate, processing, manufacturing, wholesale, retail, auto repair, science and technology sectors.