Japanese investors are looking beyond traditionally strong hubs for investing and expanding in Vietnam
Representatives of Japanese businesses make queries at an event to introduce investment opportunities in Ba Ria - Vung Tau Province
Yazaki EDS Vietnam (YEV), a Japanese producer of cable harnesses, has finally decided on a location for its expansion plans in Vietnam.
In its previous expansions, it had set up plants in Hai Phong City and Binh Duong Province, well known industrial venues with convenient transportation and skilled labor.
This time, however, YEV chose the Co Chien Industrial Park (IP) in Tra Vinh Province, which has never attracted Japanese investment.
YEV plans to invest nearly US$47.4 million in the new facility, which is expected to employ 4,000 workers.
YEV general director Sawairi Makoto said the switch was made to grab the opportunity offered by the ongoing development of transport infrastructure between Tra Vinh and Ho Chi Minh City as well as major seaports.
"Tra Vinh is accelerating the development of communication infrastructure"¦ which will facilitate goods transport in the future," he said.
Other advantages, according to Makoto, include cheaper land rent and greater availability of workers compared to other provinces with higher concentration of plants like Dong Nai, Binh Duong or those in the vicinity of Hanoi.
YEV is not the only Japanese business to move out beyond the traditional economic and industrial hubs the country.
Nidec Group, which has plants in Tan Thuan Export Processing Zone and Hi-Tech Zone, both in HCMC, last year broke ground for a $40 million facility in Ben Tre Province's Giao Long IP.
Furukawa Automotive Parts Vietnam, another Japanese company, increased its investment in Giao Long IP to $34 million from $18 million last year.
Japanese companies are turning their attention to Southeast Asia, including Vietnam, instead of China for overseas expansion in a shift that reflects rising wage costs and, to a lesser extent, anti-Japanese sentiment in China, analysts say.
Japanese investment made up 40 percent of the $13 billion FDI in Vietnam last year. As of the end of last month, Japanese companies were also leading in pledged investments with $5.7 billion, or 27 percent of the total FDI.
Sawairi said YEV's move in Vietnam marked a similar shift to disperse risks of production threatened by natural factors such as storms or floods.
He said that while typhoons hurt the operation of YEV's plants in the northern city of Hai Phong last October, the company was still able to fulfill its orders thanks to other plants in Binh Duong Province in the south, which were not affected.
He believed the new plant in Tra Vinh would help better assure customers of supply, since the location is rarely affected by storms or floods.
The concerns over floods and high tides are issues that have been raised quite regularly in recent meetings between Japanese business representatives and local governments in many provinces.
Huynh Van Nuoi, director of Ben Tre IP Management, said the number of Japanese investors looking to open facilities in the province has increased sharply recently. They are interested not only in the agrarian advantages of the Mekong Delta province, but also in mechanical and spare parts manufacturing for the car and electronic industries, he said.
Some of the investors already have facilities in well known industrial locations like HCMC and the adjacent provinces - Binh Duong, Dong Nai and Long An, Nuoi said.
Yasuzumi Hirotaka, managing director of the Japan External Trade Organization (JETRO), said that many Japanese investors have started to look beyond the regular destinations for expansion. The Mekong Delta, as well as Binh Phuoc and Lam Dong provinces, are in their sights because of improved transport infrastructure linking these areas with HCMC, he said.
"The new HCMC-Long Thanh Highway will shorten the distance between HCMC and southeastern provinces," Yasuzumi said. The East-West Highway facilitates transportation between HCMC and the Mekong Delta. Trips between HCMC and Ben Tre take only two hours, and it will take just three hours to travel between HCMC and Vinh Long Province after the Co Chien Bridge is built in 2016, he pointed out.
The shortage of land, higher rent and shortage of human resources are other factors that discourage investors from expanding business in popular industrial areas, some experts said.
Even so, for the investors, the decision is not easy.
Sawairi of YEV said his company tested the waters by leasing existing facilities for piloting production in Tra Vinh before deciding to build their own plant there.
"It's not simple to get Japanese investment," said Nuoi, adding that it took his agency two years to convince Furukawa, which wanted detailed information about all aspects of their investment, including human resources, infrastructure and the province's commitment of support in overcoming hurdles, Nuoi said.
"Even after we responded with complete information"¦ a Furukawa representative would come every two weeks to check if what we said was true."
Furukawa finally opened its production plant in Giao Long IP in 2008. Four years later, Nidec Group took Furukawa's recommendation to invest in the same IP.
However, while the abundance of workforce is a plus, their quality remains a concern. Furukawa and Nidec have had to most of the job training for their workers.
"We can't meet the demand of skilled workforce," Nuoi said.
HITTING JAPANESE IRON WHEN IT IS HOT
For the last two years, under the Vietnam-Japan Joint Initiative to improve business environment in Vietnam, which entered phase 5 last July, discussions have been held on many issues, including taxes and tariffs, customs, workforce training, intellectual property, environment, banking and infrastructure development.
"The Japanese are very thorough. They even talked about building overpasses for workers at Thang Long Industrial Park [in Hanoi], or overcrowded bus stations," said an official with the Ministry of Planning and Investment who attended many negotiation sessions with Japanese experts.
But even as they consider Vietnam an attractive destination, Japanese companies are expanding investments in other Asian countries. They invested some $13 billion in Thailand last year, almost triple their investment in Vietnam, according to Motonobu Sato, chairman of the Japanese Business Association in Vietnam.
"Vietnam needs to make clear its strategy to attract investments to compete with other countries," Sato said. "Legal issues related to the investment environment must be dealt with thoroughly."
If the government simply regarded these issues as common problems of developing countries, the country could easily lose its appeal and foreign investment will head for other countries, he warned.
On the other hand, Nguyen Dinh Thien, head of the Vietnam Institute of Economics, said their thorough consideration could also cost Japanese investors opportunities, especially as South Korean companies are strengthening their presence in Vietnam.
"Many Japanese companies have come to Vietnam, but they choose not to make large investments. They have to see 70-80 percent of the potential to make a decision. South Koreans grab the chance when they see just 40-50 percent," Thien said.
Shuhei Miura, head of CEO Office of Mitani Sangyo, a Japanese group that has invested in Vietnam for 20 years, said careful research of possible investment locations is typical of Japanese businesses.
"Sometimes, careful consideration results in late decisions, and the opportunity is gone," he said.
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