Japan increases investment in finance and service in Vietnam

In the downtrend of FDI in Vietnam, Japanese enterprises tend to pay more attention in the fields of retail, technology transfer, banking, finance and service in Vietnam instead of the manufacturing sector as before.

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Japan is now the second largest investors in Vietnam with 2,494 projects (up to January 20th, 2015) and the total registered capital of nearly 36.9 billion USD. Nonetheless, since 2011, when Japanese economy in particular and the world's economy in general has met many difficulties, Japanese investment in Vietnam are in the downward trend. According to the figures of Japan External Trade Organization (JETRO), in 2014, there were only 436 Japanese projects licensed. This is the lowest number in the past three years. The total registered capital reached over 2 billion dollars, which were less than half in comparison to the past two years. Especially, in the past, the manufacturing sector accounted for the largest proportion in a plan of foreign investment, however, in 2014, this sector reduced 53 projects. The capital also fell from 1.2 billion dollars (2013) to 830 million dollars (2014).

"The manufacturing sector often required the large capital and the long-term investment. It also depends on the market demand.  In the context when Japanese economy are facing difficulties and the global economy has still not flourished yet, the reduction of investment in production was understandable", an expert in the fields of Planning & Investment explained. Mr.  Atsusuke Kawada, Chief Representative of JETRO in Hanoi, also agreed with this explanation. According to him, Japan will not have many large projects with the capital of over one billion dollars in this year, especially in terms of production sector due to business conditions.

The report of Stoxplus published in February 2015 shown that even in indirect investment, Japan only ranked the 6th position in a list of countries conducting M&A in Vietnam. The production only accounted for 10% the total value. According to the report, large investment will not be made by Japanese investors in this year. After some big deals in 2013, Japanese enterprises are redirecting to long-term investments with small or medium capital but high potentials.

The reduction of Japanese investment in Vietnam production exerts some effects on its Vietnam counterparts. A Hung Yen-based company which specializes in producing plastic components shared that the order value in this year was only half compared to the previous year because the customer demand reduced and the price were more rigorous.  Nevertheless, many surveys shows that there are a new way of Japanese investment in other fields such as construction, real estate, transportation or financial investment. Recof - Tokyo-based Company majoring in M&A consulting has increased its present in Vietnam when M&A activities are become more and more active in recent years. CEO of Recof, Mr. Masataka Yoshida said that many Japanese enterprises were interested in expanding business in Vietnam. "Currently, a half of Recof information list are Vietnam commercial affairs including finance, transportation, technology, hotel, marketing services, and retail sectors", he stated.

JETRO report shows that the proportion of new investment projects in construction and real estate increased from 3% (2013) to 6% (2014).  "This demonstrates that Japanese investors in Vietnam recognized the potential of Vietnam real estate when new land laws were passed, Mr. Humphrey Morgan, Head of Japanese Customer Care (Savills Hanoi) spoke. According to Stoxphus, in Japan M&A list in 2014, real estate sector accounted for 61%. In financial investment, at the end of 2014, Daiwa PI Partneres along with VOF decided to invest 45 million dollars in Vietnam International Dairy Products (IDP). This was considered as the largest indirect foreign investment in a Vietnam private company in 2014. In financial institutions such as Vietcombank and Vietinbank, Japanese organizations are also large investors.

Especially, Japanese investors also take great interest in Vietnam retails. With young population and increasing income, Vietnam has become an attractive market. The largest retailer in Japan - Aeon after conducted many surveys in Vietnam market, Aeon invested more than 500 million USD for two commercials in Ho Chi Minh City and Binh Duong Province.  This group are also preparing an expanding plan to purchase shares of Vietnam domestic markets, which are Fivimar and Citimart. General Director of Aeon Yukio Konishi assessed that Vietnam is the world leading potential retail market with 90 million people.

"Japanese people are familiar with Vietnam business environment and customs. In addition, two countries still keep good relation in all fields. Therefore, Japan is still one of the leading investors in Vietnam in future. When the manufacturing factors are in difficulties, Japanese investors will redirect to other fields which has higher potentials", Mr. Nguyen Van Toan - Vice Chairman of Vietnam Association of Enterprises with Foreign Investment said.

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