Vietnam's investment environment has improved, but escalating wages and a shortage of raw materials worry Japanese-owned companies in the country, the Japan External Trade Organization (JETRO) has said.
In a report covering 19 countries in the region, it said wages are the biggest concern in Vietnam since they have been growing at the fastest pace among all markets.
Average wages rose by 19.7 percent last year to $145 per month, and are forecast to increase by 17.5 percent in 2013.
Saigon Times newspaper quoted Hirokazu Yamaoka of JETRO as saying Vietnam faces strong competition from neighbor Cambodia whose wages are just half.
Japanese companies are also concerned about the shortage of feedstock and raw materials in Vietnam, and many of them have to import raw materials and parts as a result, he said.
Compared to an average of 50 percent in other countries, the use of local parts and raw materials in Vietnam is only 30 percent.
Japanese investment in the country hit a record for the second straight year last year, and accounted for a whopping 50 percent of all foreign investment.
But Vietnam has potential to attract even more, Yamaoka said.
But the JETRO report acknowledged some improvement in the country's business environment, saying there is no longer the power shortage that existed in 2012 and earlier.
Forty percent of Japanese companies in Vietnam achieved profits last year, comparable with the average figure in ASEAN member countries. This number is expected to increase to nearly 50 percent this year.
Nearly 70 percent of companies, mostly in software, retail, and healthcare, hope to expand their business through 2014.
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