Workers at Yen Phong Industrial Zone in the northern province of Bac Ninh

Viet Nam was the fourth most popular country for Japanese firms to conduct business in this year, after Cambodia, India and Bangladesh.

The findings were part of the results of JETRO's latest survey on the business operations of Japanese-affiliated firms in 18 countries/regions in Asia and Oceania.

The survey, conducted between August and September 2010, received valid responses from 3,486 companies, or 47.6 per cent of firms that were sent questionnaires.

Nearly 60 per cent of respondents in all surveyed countries expected improved operating profits this year, compared to just 28.6 per cent last year, showing a strong recovery from the sluggish performance seen in the last two years caused by soaring resource prices, inflation and the financial crisis. This improvement was largely driven by increased sales in local markets and continued improvement is expected next year.

"In line with a recovery in profits, firms are planning to expand business operations, especially in emerging economies. The percentage of firms planning expansion rose more than 10 points over the 2009 survey. Topping the list of expansion plans was: develop new markets - expand business/sales networks", the survey found.

The average percentage of respondents planning to expand business operations in the next one to two years stood at 62 per cent, up 10.7 points from the previous survey.

While 70 per cent of Japanese companies in Viet Nam were planning to expand business operations, the rate in emerging economies such as Cambodia, India and Bangladesh was up to 80 per cent.

The percentage of firms planning to "downsize business" or "move business operations to a third country or withdraw" was just 2.7 per cent. More than 70 per cent of those firms from China, attributed this to increased expenses, including labour costs, while more than 70 per cent in ASEAN attributed this to a decline in sales.

However, Viet Nam still dropped down to fourth most popular business destination compared to third last year.

According to 143 respondents in Viet Nam, the lower position was due to higher salaries, power shortages and difficulties in purchasing equipment and raw materials from the domestic market.

Roughly 80 per cent of firms in Viet Nam and China cited an "increase in employee wages."

In 2010, double digit wage increases were recorded in six of the surveyed countries/regions, including Viet Nam, which had the highest increase at 14.2 per cent, and China and India.

Issues related to production were varied among the countries/regions. Common issues included "increase in procurement costs" (China, Thailand, Malaysia and others), "limited cost-cutting measures available" (ROK, Singapore and others), "difficulties in local procurement of raw materials and parts" (Indonesia and the Philippines), and "electric power shortage" (Viet Nam, India and Bangladesh), the survey stated.

Asked about business problems, more than half of respondents reported an increase in employee wages, growing market shares of competitors (cost-wise) and an increase in procurement costs.