The majority of Japanese enterprises operating in Vietnam polled in a recent survey said they had plans to expand their investment in the country, despite acknowledging challenges in the local business environment.
As many as 66 percent of Japanese companies operating in Vietnam will look to expand in the future, the Ho Chi Minh City office of the Japan External Trade Organization (JETRO) said on Tuesday, citing results from its Survey on Business Conditions of Japanese Companies in Asia and Oceania.
According to 88 percent of those, the main factors encouraging them to expand was the fact that they had been operating at a profit, while 46 percent saw “high potential for growth” in the Southeast Asian country, according to the survey’s results.
The poll was conducted between October 11 and November 11, 2016, surveying 1,285 Japanese businesses in Vietnam, with 639 respondents.
In the previous survey, 63.9 percent of respondents said they would expand their investment in Vietnam. The new figure, 66.6 percent, suggests that the country’s business environment has improved, according to JETRO.
Indeed, 62.8 percent of respondents to the 2016 survey said they were operating at a profit in Vietnam, up 4 percentage points from 2015.
However, just like the 2015 survey, Japanese enterprises acknowledged five major risks affecting their businesses in Vietnam, including underdeveloped legal systems and unclear legal system operations, time-consuming administrative procedures, increasing labor costs, time-consuming tax procedures and insufficient infrastructure (power, logistics and communications).
Of these five risks, all but the “increase in labor cost” has improved since the last survey period in 2016.
Only 41.8 percent of respondents said time-consuming administrative procedures were considered a risk when investing in Vietnam, a 19.3 percentage point drop from 2015 -- an encouraging result for the country’s business administrators.
Meanwhile, 48.4 percent said the most significant risks were the underdeveloped legal system and unclear legal operations, and 38.5 percent complained about time-consuming tax procedures, a decrease of 14.9 percentage points and 15.4 percentage points respectively, from 2015.
However, as many as 58.5 percent of respondents in the latest survey pointed to increased labor cost as their biggest risk, up 3.9 percentage points from 2015.
Vietnam also ranked fourth out of 15 surveyed countries in terms of having what was described as “immature industrial clusters,” with 34.9 percent of respondents believing that Vietnam’s supporting industries are underdeveloped.
This result in particular may lead to the possibility that businesses inside industries like car manufacturing may leave Vietnam for other markets, as noted by Takimoto Koji, chief representative of the Ho Chi Minh City office of JETRO.