Abstract

More Investment Competitive Advantages Than Other ASEAN Nations

Japanese firms have invested in various ASEAN countries such as Thailand, Malaysia, Singapore, and Vietnam. However, in terms of the manufacturing industry, Vietnam with its convenient transportation and low-cost labor has more advantages than other ASEAN nations. Thus, Japanese companies started to focus on investment in Vietnam. Japanese companies which have invested in Thailand are considering shifting part of their investment to Vietnam due to Thailand's instable political situation, the fluctuation in Thai Baht exchange rate, and high cost labor. The tense political situation in the Philippines and the high wages in Malaysia have also caused Japanese firms to reduce investment in these areas. In comparison, Vietnam has attractive investment conditions and the scale of investment in Vietnam is constantly increasing. It is expected in the next five years that Japanese firms will continue to increase the number of new investment projects in Vietnam and that Vietnam will gradually start to replace other ASEAN nations as an investment target.

Investment to Concentrate in North Vietnam

Large amounts of foreign investment have caused the industrial park areas in South Vietnam to gradually become saturated and this has caused investment costs to continually rise. In order to improve competitiveness, Japanese firms started to increase investment in North Vietnam. Although North Vietnam's current infrastructure is not as good as South Vietnam, North Vietnam has logistic links with China and other ASEAN nations. In addition, in order to close the gap between development in the north and south, the Vietnamese government has been promoting a special policy for investing in North Vietnam.  It is therefore expected that the majority of Japanese investment will be concentrated in North Vietnam. In terms of future development trends, apart from the manufacturing industry and the automobile industry, Japanese enterprises in North Vietnam are also investing in traditional industries as well as the electronics industry. Investment in North Vietnam's industries has become more and more diverse. It is important to note that in the short term the incomplete infrastructure and supply chain in North Vietnam indicates more difficulties in accessing materials. Foreign companies will have to assess the advantages and disadvantages in both North and South Vietnam in terms of manpower allocation, fixed costs, and logistics.

Investment Strategies Varies with Companies Size

Out of the costs involved in investing in Vietnam, Japanese companies spend 5% on human resources, while manufacturing costs account for 80%. The reason for this is that Japanese companies cannot obtain components from local suppliers in Vietnam; most of the components must be imported from other countries. Thus, it is very important for Japanese companies to find suppliers in Vietnam that are able to supply components that meet their specifications at lower production costs.

Japanese companies with larger investment scales tend to invest with their third-party partners in order to overcome the difficulties caused by the incomplete supply chain in Vietnam. Japanese companies with smaller investment scales tend to be more conservative and rely more on their traditional channels for gaining materials and resources. Given the incomplete supply chain in Vietnam, these companies still procure components from overseas suppliers despite the extra cost.

Appendix

List of Companies