At a press conference early this month, Toyota Vietnam said there are chances that the world’s largest automaker will end its manufacturing business in the country and focus on importing cars instead.
The company’s president Yoshihisa Maruta said it is considering the option, as cars brought into Vietnam from other Southeast Asian countries will be exempt from import duties in 2018 under a regional agreement.
It then will be cheaper to bring a car in than to produce it here in Vietnam, where supporting industries are underdeveloped, he said.
Toyota is not and may not be the first foreign investor discouraged by local suppliers’ weak capacity.
When trade barriers are broken down, manufactures will have to weigh all of their options. And unless its local business environment is improved, Vietnam will not be able to compete with its neighbors in the race to become the production hub of choice for foreign companies.
In 2008, Sony, another Japanese giant, closed its factory here after 18 years of operation.
Analysts then had different theories about the move, the most popular of which was that Vietnam was obliged to remove its trade barriers as part of its deal with the World Trade Organization, making local products unable to compete with imported goods.
Speaking to Thanh Nien, economist Le Dang Doanh said it is “very possible” that other foreign investors in sectors with a poor investment environment and a weak network of suppliers for materials and components will follow the footsteps of Toyota.
Economist Ngo Tri Long agreed, saying that for businesses, profits come first.
It makes sense when they turn to trading services, which are generally more profitable than manufacturing, Long said.
Meanwhile, Nguyen Minh Phong, another economist, predicted that foreign investors will likely move their production to Thailand, where infrastructure and supporting industries are good, and then import products into Vietnam.
However, he said, whether investors move their factories out of the country “totally depends on the government’s policies," suggesting the government do something before producers jump ship.
Economist Bui Kien Thanh warned that when foreign businesses turn to import instead of production, foreign goods with cheap prices and high quality will flow into Vietnam, and local businesses as a result will lose their share of the market.
Vietnam attracted over US$1.8 billion of foreign direct investment in the first quarter, equal to 55.1 percent of last year’s value, according to statistics from the Foreign Investment Agency under the Ministry of Planning and Investment.
Investment from Japan hit $294 million, down nearly 30 percent year on year.
Under an economic agreement between Vietnam and Japan, more than 3,200 items like electronics imported from Japan will not carry any import taxes from April 1.
A similar trade pact with South Korea also took effect on March 30.