JAPANESE RETAIL BUSINESSES WANT TO EXPAND IN VIETNAM

100 per cent of Japanese retail businesses in Vietnam have expansion plans, according to a Survey on the Status of Japanese Enterprises Investing Abroad in the fiscal year 2023.

Announced by the Japan Trade Promotion Organization (JETRO) in Vietnam on January 26, the survey was conducted from August 21 - September 20, 2023.

Nobuyuki Matsumoto, chief representative of JETRO in Ho Chi Minh City said that by industry group, the proportion of manufacturing enterprises wanting to expand operations was 47.1 per cent, and non-manufacturing enterprises 65.5 per cent.

Japanese businesses evaluate the attractiveness of Vietnam as a growing and potential market. The main strength is the stable socio-political situation and cheap labour. Vietnam will continue to receive a lot of attention in the China + 1 trend.

Further results from the survey pointed out that 56.7 per cent of Japanese businesses said they planned to expand business in Vietnam in the next 1-2 years, the second most in Southeast Asia, after Laos.

“This rate decreased by 3.3 percentage points compared to the 2022 survey. Although expansion ambitions remain high, Vietnam is the only country among the six key Southeast Asian countries with a reduced expected expansion rate,” said Matsumoto.

Across all Asia-Pacific markets that JETRO surveyed, the rate of Japanese businesses planning to expand business in Vietnam is behind India, Bangladesh and Laos. Thus, after two consecutive years of Vietnam leading Southeast Asia, Laos has surpassed the ranking, with 63.3 per cent of Japanese businesses wanting to expand their business inside the country.

However, the main risks that make them hesitant are complicated administrative procedures, increased labour costs and an incomplete legal system that lacks transparency in operations.

A trend to note is that Vietnam has the advantage of cheap labour but at the same time the risk is that costs are increasing. In addition, Vietnam is behind other countries in Southeast Asia in terms of infrastructure, he added.

The rate of Japanese businesses expected to be profitable when doing business in Vietnam in 2023 is 54.3 per cent, 6.6 per cent points lower than the Southeast Asia average. The cause is a decline in domestic and foreign demand, increased labour and input costs, and fierce competition with other competitors.

By 2024, half of businesses surveyed said profits would improve. "Although exports have had a difficult year, it is expected to recover," Matsumoto said.

Last year, the localisation rate of Japanese companies in Vietnam increased to 41.9 per cent. JETRO said that Japanese businesses still had high motivation to promote on-site purchasing activities, and at the same time expected the further development of the supporting industry.

"Going forward, high-quality personnel such as specialised engineers is an issue that needs attention," Matsumoto recommended.

According to the General Statistics Office, Japanese investors registered nearly $6.57 billion into Vietnam, accounting for nearly 18 per cent of the country's total foreign investment capital in 2023, an increase of 37.3 per cent compared to 2022, ranking second among countries and territories investing in Vietnam.

Source: VIR