Japanese Investment in Vietnam: A Strategic Partnership

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By Marcelo Giovannetti

HANOI – Earlier this month, Japanese Prime Minister Shinzo Abe promised ¥100 billion (US$970 million) in official development assistance (ODA) to Vietnam during a conference with his counterpart Nguyen Tan Dung, making the country Vietnam’s largest ODA sponsor with around US$20 billion committed between 1993 and 2012.

Japan is Vietnam’s largest foreign investor and third largest trade partner, with their bilateral trade value reaching highly lucrative figures in 2013. This happens as Tokyo pivots itself to woo ASEAN nations with investment in order to counter an increasingly assertive China.

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Strategic Partnership

Over the past years, Vietnam-Japan relations have developed into a strategic partnership in which mutual trust and sharing between the two Governments has created a sturdy foundation for a sustainable cooperation that transcends politics and economics.

According to RGIP President Akihiko Okamoto, Vietnam is one of the nations which has great potential for economic development, as there is always a shortage of human resources. Japan’s RGIP Investment Company, which recently invested a large sum into Ho Chi Minh City-based Anphabe Joint Stock Company, is just one of thousands of Japanese investors currently in Vietnam.

With relatively cheap labor and growth markets, Vietnam currently ranks second in ASEAN in terms of attracting Japanese investors.

“Until recently, many Japanese manufacturers were looking to China, but it is more and more difficult because the currency is strong and wage costs are rising rapidly,” says Mr. Hirokazu Yamaoka, JETRO Vietnam’s chief representative, in an interview with the Financial Times. “There are also political issues between Japan and China.”

In contrast, it is commonly cited that Vietnam serves as more than a long-term investment destination but also as a trusted friend and companion.

Investment Projects

In 2012, Japan was ranked as Vietnam’s top source of foreign direct investment, with 317 projects approved worth US$4,371 million. It was not until recently, however, that Japan began to invest beyond export-oriented and labor-intensive manufacturing industries.

There is an increasing trend among Japanese companies to hold Vietnam as an important strategic location for a wide range of investment projects that cover fields such as urban development, pharmaceutical manufacturing and value-added office automation equipment manufacturing.

Japanese enterprises recognize Vietnam as a gateway into the ASEAN bloc, a key industrial and consumer market. If all goes well, the establishment of the ASEAN Economic Community in 2015 will smoothen the implementation of production activities in the region and integrate Vietnam into the supply chain of Japanese corporations already present in the region.

Although it can take a considerable amount of time for Japanese firms to make investment decisions regarding Vietnam, few companies have exited the country once their investments have been established.

“Japanese companies have a more long-term view,” says Shoji Kono, a corporate vice-president at Tamron, which is currently planning a hefty investment in Ho Chi Minh City. “We accept the situation, consider the best way forward, and don’t complain to anybody.”

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