Japanese investors seeking increase of localisation ratio

Domestic real estate developer N&G Group JSC, in collaboration with Onaga Company from Japan, on March 18 held a groundbreaking ceremony for a chain of factories at the Hanssip Industrial Park in Hanoi.

This chain of facilities will serve Onaga Company’s investment project and a group of Japanese enterprises, which specialise in manufacturing aircraft components, products for applications in the fields of aerospace, shipping, high-speed trains, cars, agricultural and fishery equipment, robotic details, high-tech precision mechanical products, and supporting industries. Onaga is the representative of a group of businesses in the Kobe region.

Pham Quang Khai, general director of N&G Group, said, “The factories are designed to meet the standard of Onaga and the group’s members, which is suitable for linking between Japanese and domestic supporting companies, helping domestic manufacturers join the supply chain in Japan and the globe.”

“The cooperation between N&G and Onaga contributes to promoting the connection between business communities of the two countries. We expect to welcome hundreds of Japanese enterprises to our industrial zones across the country. Joining the supply chains of Japanese enterprises will help to improve the manufacturing capacity of domestic suppliers,” Khai said.

N&G Group will also provide extensive information on the investment environment in Vietnam and preferential policies to attract foreign investment to Vietnam. Besides that, N&G will support investment procedures; supporting the training and recruitment of highly qualified workers at the request of Japanese enterprises.

Establishing a closed supply chain in Vietnam will contribute to attracting more investors from Japan, simultaneously limiting the import of parts and components for supporting industries, on which Vietnam spends hundreds of billion US dollars per year.

Statistics published by the Foreign Investment Agency under the Ministry of Planning and Investment showed that at present, Japanese groups are investing in nine sectors in Vietnam, focusing on the manufacturing and processing sector with the total registered investment capital of $42 billion.

More than 55 per cent of 700 surveyed Japanese enterprises in Vietnam are seeking to expand their operations in the country in the next one or two years, according to a survey conducted by the Japan External Trade Organization (JETRO) and published in January. They are also keen to expand localisation efforts in Vietnam because their ratios remain low.

At present, only 0.2 per cent of one million domestic businesses have joined the supply chain of supporting industries. The localisation ratio for automobiles is between 5-20 per cent, the electronics sector at 5-10 per cent, and mechanical processing at 15-20 per cent. Meanwhile, the localisation ratio of the high-tech sector is 1-2 per cent only.

According to JETRO, businesses operating in Vietnam depend on imports for more than 60 per cent of production inputs, while the impact of the pandemic continues to disrupt supply chains and increase transportation costs.

The statistics published by the General Department of Vietnam Customs showed that in 2021, the country’s total import turnover of machinery, equipment, accessories, means of transport and components was over $140 billion, including $75.44 billion for computers and electronics components, $46.3 billion for machinery and parts, $21.43 billion for mobile phones and components. China, South Korea, and Taiwan are the three largest import markets of these products.

In order to improve the capacity of domestic supporting industries, early this year the Ministry of Industry and Trade said that in 2022, it will closely coordinate with several multinational corporations like Samsung and Toyota to connect with local suppliers of materials and accessories, in an effort to seek alternative supply for imports in both short and long terms.

In May 2021, Toyota Motor Vietnam and the MoIT signed an MoU on cooperation to provide assistance for the automobile supporting industry in the Southeast Asian country.

Vietnam and Japan have agreed to further beef up the two nations’ trade and investment cooperation, with Vietnam vowing to facilitate the operations of Japanese businesses which seek to ensure reliable supply chains between the two countries.

“To build upon our countries’ time-tested cooperation and better harness each other’s potentials and strengths, Vietnam looks forward to working with Japan to enhance the effectiveness of existing cooperation mechanisms while putting forward new ones to jointly pave the way for a new development phase in the Vietnam - Japan Extensive Strategic Partnership,” said Prime Minister Pham Minh Chinh.