Factory workers change shifts at the Thang Long industrial park outside of Hanoi in a file photo. Vietnam should support Japanese firms with employee recruitment and training, investors say.
With its low labor and production costs, Vietnam is an attractive destination for many Japanese investors, but it needs to further improve its investment environment and human resources to fully capitalize on the opportunities, experts said.
Last year 208 Japanese-invested projects were licensed, double the previous year's figure and a record for Japanese companies abroad, according to Yamaoka Hirokazu, chief representative of the Japan Trade Promotion Organization in Vietnam.
Many Japanese firms recognize that they cannot do too well in Japan because of the low economic growth and ageing population, Hirokazu said.
Thus, China, Indonesia, Thailand, and Vietnam have become attractive destinations for them.
But after the serious flooding in Thailand last year, many realized they were facing a big risk by pouring too much investment in any one country, he said.
Other Japanese firms are moving out of China, where labor costs have increased sharply and the yuan has risen in recent years, to other countries, including Vietnam, where production costs are lower, he said.
Japanese firms' foreign investments are also supported by the yen's appreciation.
Following large companies, small ones are also moving abroad.
According to a recent online survey by Japan's Nikkei Economic Times newspaper, Vietnam is considered the most attractive destination for investment, surpassing Thailand and Indonesia.
Japan has 1,667 operational projects with total capital of US$23.6 billion in Vietnam, ranking fourth out of 92 countries and territories.
Most are in manufacturing and high technology, Vietnam's Foreign Investment Agency said.
Yoshifumi Tsujio of the Japan International Cooperation Agency (JICA), said: "Japanese-invested projects have achieved rapid growth, making a great contribution to Vietnam's development, especially in the electronic and automobile industries."
However, Japanese investors are facing difficulties due to the poor infrastructure and weak support industries. Vietnam needs to improve the latter to add value to its products and compete with other Southeast Asian countries like Thailand and Singapore, he said.
Admitting to these shortcomings, Foreign Investment Agency Director Do Nhat Hoang said Japanese small- and medium-sized enterprises (SMEs) are concerned when considering investing in Vietnam because they do not have enough information about the investment opportunities, environment, and related policies.
Vietnam is soliciting Japanese investment in support industries to help them join the global value chain, he said.
Those industries now meet only 20 percent of domestic demand, while the rate is around 80 percent in Thailand.
Tran Duy Dong, deputy director of the department of the Ministry of Planning and Investment's economic zone management, said Vietnam is also urging Japanese companies to invest in electronics, in which they are world leaders.
Yoshifumi Tsujio of JICA said many Japanese investors in Vietnam are SMEs, so the most important factors in deciding to invest in Vietnam are production costs and availability of infrastructure such as electricity, water, and waste treatment.
"Thus, accurate information should be fully provided to the investors, especially when policies are changed."
Hideo Okubo, chairman and CEO of Foval Corporation, a Japanese business consultant, said Vietnam should simplify investment registration procedures.
A single-window licensing system using the Japanese language, and even set up in Japan, would draw SMEs to Vietnam, he said.
Vietnam should also support Japanese firms with employee recruitment and training, he said. "Vocational training schools that teach Japanese culture and working style of Japanese people should be built in industrial parks."
Japan accounts for 12.9 percent of total foreign investment in Vietnam's industrial parks, ranking second only behind Hong Kong. They accounted for 32 percent of the country's total industrial production and 25 percent of exports in 2010, according to the Ministry of Planning and Investment.
Dong said Vietnam, to simplify investment procedures, has passed the Investment Law, which applies to both local and foreign investors, which mandates that licenses should be issued within 15 days.
If provinces and cities improve infrastructure for manufacturing and electricity and telecom services, Japanese investment could just surge in Vietnam this year, he said.