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Vietnam’s supporting industries will get a helping hand from Forval Corporation
" There are many options for Japanese SMEs to expand overseas investment in Asia, but Vietnam seems to be a good choice.” - Hideo Okubo Chairman of Forval Corporation
The Ministry of Planning and Investment’s Foreign Investment Agency (FIA), as part of its mission to build supporting industries, last week signed a memorandum of understanding with Tokyo-based Forval Corporation to promote Japanese SMEs’ direct investment in Vietnam.
Under this memorandum of understanding, the two sides will regularly exchange information and opinion concerning promoting Vietnam’s investment environment in Japan. Moreover, the FIA and Forval will conduct activities to introduce and support Japanese SMEs wishing to penetrate Vietnam’s market.
“We need investments from foreign SMEs because our supporting industries remain underdeveloped,” said FIA director Do Nhat Hoang.
After 26 years reforming its economy, Vietnam has emerged as one of the most attractive manufacturing bases in Asia, attracting interests of many multinational companies such as Canon, Intel, Samsung, General Electrics, Toyota, Ford and General Motors.
Though many foreign companies have set up manufacturing facilities in Vietnam to take the advantage of low-cost labour, an expanding market and political stability, they are facing difficulties in buying parts and components from local suppliers.
The auto industry is a glaring example. Foreign car-makers like Ford, Toyota and General Motors have already built their factories in Vietnam for more than 10 years, but the localisation rate is around 10 per cent.
Laurent Charpentier, chairman of Vietnam Automobile Manufacturers’ Association, said inadequate supporting industries had hindered the auto industry’s localisation process.
In every country, SMEs play a very important role in the development of supporting industries. In Vietnam, there are around 600,000 enterprises and about 90 per cent of them are SMEs.
However, most Vietnamese SMEs have been using out-dated technology, weak management skills and failing to measure up to multinational companies’ requirements. The FIA expects Japanese SMEs’ investments to help fill the gap and create a magnet to attract more multinational companies.
The memorandum of understanding it signed with Forval is also the first inked with a private firm to promote foreign SMEs’ investment in Vietnam.
Hoang said the deal would be “urgently and effectively implemented”. “We want to promote investments from Japanese SMEs because they have advanced technologies and know-how. More importantly, many large-scale Japanese companies have already invested in Vietnam,” Hoang said.
Japan is now the biggest investing country in Vietnam, with $27 billion registered, but Hoang said this figure was modest in comparison with the total overseas investments of Japanese companies.
“We learnt that Japanese companies have invested $2 trillion in overseas markets, of which only $27 billion has been registered in Vietnam. This is not adequate considering the relationship between Vietnam and Japan,” he added.
However, there are signs of a new wave of Japanese investment in Vietnam. Despite foreign direct investment (FDI) commitments to Vietnam slipping because of the ailing macroeconomy, many Japanese companies have landed in Vietnam seeking new investment opportunities.
From January to May, Japanese companies committed to invest $3.68 billion into Vietnam, accounting for 69 per cent of total committed foreign investment in this country. Big companies like Bridgestone, Suzuki and Kyocera Mita has also decided to invest in Vietnam.
Hideo Okubo, chairman of Forval Corporation, said Vietnam had a big opportunity to attract Japanese SMEs. He said Japan had around four million SMEs and just 6,000 had invested in overseas markets. More importantly, more Japanese SMEs increased overseas investment because of the weaknesses in Japan’s economy and concerns over the tsunami in 2011.
“There are many options for Japanese SMEs to expand overseas investment in Asia, but Vietnam seems to be a good choice,” said Okubo.
Over the past years, many Japanese SMEs have invested in Thailand and China, but wages in China are rising rapidly and these companies also learnt a lesson from the historic floods in Thailand last year.
“They will carefully consider investing in Thailand because they don’t know whether a flood like last year will occur,” Okubo said.
Indonesia is emerging as an attractive place for investment in Asia, as FDI inflows in this country increased sharply last year and in the first quarter of this year. But Okubo said Japanese SMEs had learnt that they should not put all eggs in one basket. In addition, wages in Indonesia were rising.
So are wages in Vietnam. However, they are still relatively lower than regional countries. Vietnam faces high inflation challenges, a factor hindering FDI in the country, but there are signs it is cooling. Okubo said the biggest hindrance for Japan’s SMEs to expand investment in Vietnam was the shortage of skilled workforce.
The lack of information about Vietnam was another factor preventing Japan’s SMEs from investing in this country, he added.
After signing the memorandum of understanding with Forval Corporation, Hoang said the two sides would implement some investment promotion activities in Japan.
“We will change the method of investment promotion to make it more effective,” he added.
These activities will not be conducted in big Japanese cities like Tokyo and Osaka, like Vietnamese provincial authorities did in the past.
Instead, Okubo said his company and the FIA would join hands to organise investment promotion activities in smaller cities where most of Japanense SMEs have set up factories to supply components and spare parts for the automobile and electronics industries.
“Each time we hold an investment promotion, we will focus on a group of SMEs in a specific industry, so that we can learn what they need in Vietnam,” said Hoang.
Realising the importance of Japan’s SMEs investment, the Vietnamese government is planning to build two industrial parks for Japanese supporting industries companies, one in northern Haiphong city and one in southern Ba Ria-Vung Tau province.
Forval Corporation also plans to build an industrial park for supporting industries in southern Vietnam, but Okubo declined to reveal more details.
With competition for FDI among countries getting tougher, Vietnam must boost the development of supporting industries more rapidly and Hoang said the new programme must be quickly implemented in the next three years.
“If we don’t do anything in the next three years, Japanese SMEs will expand investments in other countries like Indonesia, Malaysia and even Myanmar and Cambodia. I expect the cooperation with Forval Corporation will bring good results,” he added.