Features

Many Japanese companies have expanded their investment into Vietnam in recent months.
But, it has not been as expected because of floods in Thailand and the tsunami that hit Japan in March.

Instead, Japanese companies have increasingly high expectations of Vietnam’s market potential and are excited about the cost advantages of doing business here.

Kyoei Steel, Mitsui and Itochu Corporation through their joint venture with Vietnam Steel Corporation, recently unveiled plans to build a second factory in Vietnam. The new factory, capitalised at $200 million, is to be in Ba Ria-Vung Tau province where the joint venture Vina Kyoei Steel operates a steel factory.

Akihiko Takashima, board director of Kyoei Steel, said this project was expected to be operational by 2013. It would produce thread steel bars, plain round bars and billets for which Vietnam currently relied on imports.

Meanwhile, car-maker Suzuki Motor decided to construct a new automobile plant in Dong Nai province in southern Vietnam. The investment for the new plant is approximately $13 million, and production is slated to kick-off in 2013. Annual production capacity for the first year is 5,000 units, with expansion to follow, Suzuki Motor announced in a statement.

At the same time, Bridgestone Corporation – the world’s largest tire and rubber company – announced on November 11 its plans to build a new plant in Vietnam that will produce radial tires for passenger cars. Plans call for a production capacity of approximately 24,700 tires per day after production ramp-up is completed in the first half of 2016.

Panasonic, Honda, Kyocera Mita Corporation, and Tokai Kogyo Group have also trumpeted plans to build news factories in Vietnam this year while just last week, a delegation comprising 80 companies from Japan’s Kansai region visited Vietnam seeking investment opportunities.
The surge in Japanese investment to Vietnam comes in the context of floods in Thailand and in the aftermath of the earthquake and tsunami that hit Japan in March. A strengthening of yen was another factor affecting the north Asian country’s economy.

But, Japanese investors said the natural disasters in Thailand and Japan were not the key reason forcing them to expand business activities in Vietnam. Nor was current strength of the yen.
“A few companies have reasons to work with Thailand, but most all companies are not coming here for that reason,” said Takeshi Ohgita, deputy general director at Vina Kyoei Steel Company, adding that Japanese investors normally needed a long time – around one year – to do surveys before making investment decisions.

Japan is now among the largest investors in Vietnam with 1,623 projects capitalised at $22.3 billion. In recent years, the Vietnamese government has launched many campaigns to invite Japanese companies to invest in Vietnam.

Ohgita said Japanese newspapers had carried many reports about Vietnam, especially in the last two years and this had sparked the interest of many companies in Vietnamese market.
“As a result of these reports many companies have decided to invest in Vietnam. It means the yen is not affecting current investment and expansion. And one of the reasons is the strength of the yen, but the main reason is demand and cost,” he added.

And it’s not as if Thailand’s floods have seen the country fall out of favour. Thailand has a developed supporting industry and better infrastructure than Vietnam. But, Japanese firms believe Vietnam has a huge market potential and the investment costs in Vietnam are cheaper. “Population means demand and cost means salary,” said Ohgita.

Shinichi Iwama, general director of Daiwa Vietnam, said Vietnam’s labour costs were higher only than those in Cambodia, Bangladesh and Myanmar, giving this country a cost advantage over Thailand, China, India and Indonesia.

In terms of population, Vietnam has more than 86 million people while Thailand can boast of 70 million. Japan’s population may be bigger than both countries but Ohgita says the demand in his country topped out some years ago. “Most demand is weakening year by year.”

All the Japanese firms which have recently touted new investments in Vietnam said they saw a growing demand and cost advantage in this market, stressing this is the main reason for expanding production here.

“Our company has invested in Vietnam since 1995 and we see that the Vietnamese market is a potential market for our products,” said Luong Hoang Thanh, marketing manager at Vietnam Suzuki Corporation.

In selecting its site, Bridgestone made a comprehensive evaluation from a variety of perspectives including infrastructure, location, workforce, and cost. Panasonic also said Vietnam was an ideal investment destination based on “positive growth, political stability and an increasingly capable and fast-learning workforce full of potential.”

Panasonic expansion plans for Vietnam include the building of a new plant in Hanoi’s Thang Long Industrial Park. It will introduce manufacturing items multi-layer resin boards to meet rapidly growing demand for smart phones. Production will begin in August 2012.

Panasonic has also decided to expand its refrigerator factory at Thang Long Industrial Park. And next year, Panasonic will open a new washing machine factory in Thang Long Industrial Park 2 in Hung Yen province.

Shutoth Noriaki, chairman of Japan Business Association in Vietnam, said: “From last year, Japanese investors have searched suitable places for China plus one considering the China risk.” But he believes the flood in Thailand would make Vietnam more attractive.