About half of Japanese companies in Vietnam expect higher profits in 2024

About half of Japanese companies operating in Vietnam expected improvements in profits in 2024, a survey conducted by the Japan External Trade Organisation (JETRO) found.

The survey on the business conditions of Japanese companies operating overseas in the fiscal year 2023 showed that the percentage of companies that expected to make a profit in 2023 was 54.3%, 5.2 percentage points lower than the 2022 survey and equivalent to the level in 2021 during the COVID-19 pandemic.

The figure is 6.6 percentage points lower than the average rate in ASEAN countries. In 2017-2019, the percentage of businesses expecting to make a profit was above 65%, higher than the region average.

The decline was attributed to lower demand in export markets and in the domestic market, increased business costs, and fierce competitions with others in the sectors.

Regarding the operating profit forecast for 2024, 50.4% of Japanese companies in Vietnam expected improvements compared to the average rate in the region of 43.8%.

"Although exports had a difficult year, they are expected to bounce back in the coming time," Nobuyuki Matsumoto, Chief Representative of JETRO’s Ho Chi Minh City, told a press briefing to announce the survey’s results in the city on January 26.

The survey also pointed out that about 56.7% of Japanese companies plan to expand their operations in Vietnam in the next one to two years, down 3.3 percentage points from the 2022 survey, and the second highest rate in the Association of Southeast Asian Nations (ASEAN), only after Laos at 63.3%.

Although expansion ambitions remain high, Vietnam is the only country among the six key ASEAN countries to have a decrease compared to the preceding year.

In terms of sectors, 47.1% and 65.5% of respondents in the manufacturing sector and non-manufacturing sector, respectively, planned to expand operations in the country to increase exports and capitalise on the domestic market.

In particular, 100% of surveyed Japanese retailers in Vietnam have expansion plans.

As for the functions to be expanded, 62% plan to expand their sales function driven by an increased demand in the domestic market.

"We see that more Japanese businesses are investing to expand and dominate the Vietnamese market. Information technology firms are tending to invest more,” Matsumoto said.

In terms of the local procurement rate in Vietnam, the survey found that the rate has risen by 10 in the past decade and reached 41.9% last year, of which procurement from Vietnamese suppliers was 17.2%. But it remained far below that of China (68.3%), Thailand (59.6%) or Indonesia (53.3%).

He suggested local suppliers continue to expand their production capacity and efficiency to meet requirements from foreign buyers.

The survey also pointed out that 34.4% of all respondents in Vietnam making efforts toward decarbonisation, up 5 percentage points from the previous survey.

The majority of polled companies said market scale and growth, political stability, and low labour cost are the greatest advantages of Vietnam’s investment environment.

However, they were concerned about some risks of the Vietnamese business environment related to the efficiency of administrative procedures, tax system, tax procedures, and the legal system, and rising labour costs.

The survey was conducted from August 21 to September 20 last year.

JETRO sent questionnaires to 14,018 Japanese companies investing in 20 countries and territories in Asia and Oceania and received valid responses from a total of 4,982 companies, including 849 in Vietnam.

Japan consistently ranks among the top countries in terms of foreign direct investment in Vietnam.

According to the General Statistics Office, last year Japanese investors injected 6.57 billion USD into Vietnam, accounting for 17.9% of total FDI, an increase of 37.3% against 2022, ranking second among countries and territories investing in the country./.