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Free trade agreements prompt Japanese to change investment mode
Instead of setting up manufacturing bases in Vietnam, many Japanese investors have decided to establish trading companies to manage the export of Japanese goods to Vietnam, according to Tuoi Tre newspaper.
Hirota Nakanishi, consultant expert of JETRO, the Japanese trade office in HCM City, notes a new trend in the way Japanese investors seek to access Vietnam’s market. Previously, 80 percent planned to set up production in Vietnam. That’s now the goal of only 50 percent.
Under the Vietnam-Japan Economic Partnership Agreement (VJEPA), which will take effect as of October 1, 2009, thousands of import products from Japan to Vietnam will enjoy a zero percent tariff rate.
Meanwhile, the ASEAN-Japan free trade agreement, which took effect on December 1, 2008, has already lowered tariffs to the zero to five percent range. This paves the way for the goods manufactured by Japanese factories in other ASEAN countries to flow into Vietnam.
Trading moves to center stage
In late August 2009, Sharp Vietnam Electronics Company announced its official transformation into an import company, after 14 years as a representative office. Sharp Vietnam has the right to import electronics, refrigeration, home electric products.
It has also taken over responsibility for distribution of the goods, including the quality commitment, maintenance and post sale services from Mitsui Vietnam, previously Sharp’s authorized distributor.
Sharp Vietnam’s General Director Masashi Kubo said that per capita income per capita in big cities like Hanoi and HCM City has risen to $2,500 to $4,000 in 2009. This is among the reasons which has made Sharp target the Vietnam market.
Sony, has run a small assembly plant in Vietnam over the last decade. Now it will close the factory to shift to trade. Sony’s decision was a shock to Vietnamese officials who have wooed electronics big names, hoping they would be catalysts for development of an advanced electronics industry in Vietnam.
Changing the way to access market
Cao Binh is owner of the Hachi Hachi Shop in Phu Nhuan district in HCM City, which specializes in selling imports from Japan. Binh said that the demand decreased from late 2008 to June 2009 due to the economic downturn, but the number of products he has on sale has increased to over 4,000, twice the number two years ago.
It is now easier to go to Japan to find goods to sell in Vietnam, Binh said, not because of the lower tariff, but because Japanese companies want to increase exports to Vietnam. “Previously, we had to place big orders to ‘catch the eyes’ of Japanese producers. Now we just need order 500 units,” Binh said.
Economists said that in the global economic recession, the demand in Japanese market has fallen. Companies therefore have been trying to boost exports to other markets. Vietnam has become a target market for many companies thanks to its high population.
Statistics released by local planning and investment departments in HCM City and in nearby Binh Duong and Ba Ria-Vung Tau showed that hundreds of foreign-invested trading enterprises have been established, including many Japanese companies.
According to the HCM City Industry and Trade Department, sixty-four representative offices of Japanese businessmen were set up in the last two years, mostly operating in the import-export field. Only three nations have more offices in Vietnam than Japan. An official of the department said that many offices have been upgraded to trading companies after a period of making market survey in Vietnam.
According to a Japanese director, the business environment here has seen many changes since Vietnam joined the WTO. “The changes in the market opening policy (allowing 100 percent foreign owned companies in the retail sector, or allowing the import of products for domestic consumption), together with a rising cost of running an assembly plant in Vietnam, have forced us to reconsider the strategy to access Vietnam’s market,” he said.
The trap of ‘free trade’
According to Professor Tran Van Tho from Waseda University, it is a normal thing if Japanese investors turn to trading instead of running production projects in Vietnam. The thing that Vietnam needs to do now is to apply reasonable policies to attract foreign investors not only to the trade, but to production sector as well. This is the ‘trap’ of free trade.
The two things that help attract Japanese investors in manufacturing and high technologies are 1/ developing supporting industries and 2/ developing small and medium enterprises.
VietNamNet, TT
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