Japan now has over 214,000 small and medium-sized enterprises (SMEs) in the manufacturing industry without overseas investments. This situation offers Vietnam opportunities to attract these firms in a bid to develop the feeble supporting industry at home.
After more than 16 years of operating as the leading auto firm on the local market, Toyota has only been involved in 17 domestic component suppliers despite its highest level of local content among industry insiders. Toyota has had to import the majority of nearly 40,000 components to assemble cars while only purchasing simple spare parts like seats, glass and screws from domestic partners.
Not only Toyota but also many other foreign auto producers and electronics firms in Vietnam are doing business in the same way. They are inclined to import components to evade import taxes and make use of cheap labor costs in the country. The situation has shown no signs of improvement even though the Government has tried to call for foreign investment into supporting industries for years. Is it true that there are no chances left for Vietnam to lure supporting producers from Japan?
At a recent seminar themed “How to entice Japanese SMEs into Vietnam’s industrial parks” held by the Foreign Investment Agency under the Ministry of Planning and Investment in partnership with Japan’s Forval Group in HCMC, most Japanese experts asserted the huge chances for Vietnam, saying whether Vietnam could draw Japanese investment depends on its policies. This confirmation comes from the fact that up to over 214,000 out of a total of some 220,000 SMEs in Japan have not been engaged in oversea investment activities so far.
In fact, Japanese businesses have shown their keen interest in the local supporting industries, proven by the overwhelming presence of Japanese business delegations here over the past time to explore investment potentials. Statistics by the Japan External Trade Organization (Jetro) in HCMC indicated Jetro received up to 2,400 Japanese investors seeking business opportunities in Vietnam between April last year and January this year. With such a great number of potential investors, the Jetro office in HCMC ranks second among 73 offices globally but captures first place if including the Hanoi office. However, whether these investors will choose Vietnam as their investment destination still remains a question.
Masahiko Koumura, Japan’s former Minister of Foreign Affairs, said: “Japanese SMEs play a very important role in developing Vietnam’s supporting industries.” Therefore, he stressed, Vietnam needs to adopt appropriate policies and set up a favorable investment environment to woo Japanese SMEs.
The so-called environment as implied by Japanese experts includes both working conditions and those facilities meeting the livelihood as well as culture of the Japanese community.
Similarly, chief representative Sakae Yoshida of the Jetro office in HCMC, who has been working with Japanese investors for a long time, cited their difficulties and concerns over limited capital sources and poor oversea investment experiences. “They just have enough money to hire small-scale workshops for dozens of workers. That is the reason why local industrial parks should offer them workshops covering about 300 square meters each at competitive prices,” he reckoned.
Yoshida urged the nation to build up a mechanism to provide information and support Japanese companies when necessary, adding Japanese-speaking human resources and labor shortages must be tackled drastically. “Services for Japanese investors should be available along with Japanese-speaking staffs at their accommodations such as restaurants or schools since they are not fluent in foreign languages,” he added.
Echoing Yoshida’s view, Hideo Okubo, chairman cum chief executive officer of Forval Group, pointed out local industrial parks only targeted big investors when developing leased land or factories on large areas of at least 1,000 square meters each while Japanese SMEs need much smaller plants. He proposed the construction of industrial parks be associated with local urban development. Apart from the area for industrial production, these industrial parks should set aside other areas for developing housing, commercial centers, Japanese restaurants and entertainment areas, clarified Okubo, who is also chairman of the Supporting Committee for Globalization of SMEs of the Japanese Business Association. He stressed this is an obvious trend in the future and a vital condition to entice Japanese investment in supporting industries.
A large number of industrial parks in Vietnam, as observed by Okubo, have only focused on building infrastructure but have neglected developing urban areas around them. Fully-furnished industrial parks would definitely catch the attention of those Japanese investors with strong financial capability and the presence of any large Japanese business there is the most persuasive offer to other compatriots, Okubo said. Some nations in the region have greatly succeeded in luring Japanese investors over the past time thanks to such a model, he added.
Hard to satisfy
Actually, a number of joint venture companies active in infrastructure development have also embraced the same model in the country. They have shifted to constructing industrial parks in parallel with urban areas with full facilities for foreign investors. However, some of them have voiced concerns over the feasibility of such projects due to enormous capital volumes and the support from the central and provincial authorities required. In particular, they are worried about how to develop 300-square-meter factories.
The construction of small plants costs more expenses than larger ones, explained Phan Van Chinh, head of investment department of Infrastructure Development Investment Joint Stock Company (IDICO). Also, project owners find it difficult to build fences, gates and arrange fire prevention and fighting equipment at those small factories in line with the prevalent law.
Head of the Foreign Investment Agency Do Nhat Hoang encouraged industrial park developers to muster up all their strength to satisfy Japanese investors’ requests in the backdrop of these companies, a move to shift production activities out of their nation. Hoang, meanwhile, also admitted Vietnam failed to follow all advice from Japanese consultants. He noted the issue is even more inextricable in terms of general infrastructure development since incentives for investments in supporting industries must be decided on a national scale.
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