The survey shows the business conditions of Japanese companies investing overseas in the fiscal year 2025. This marked the 38th such survey conducted by the organization across Asia and Oceania. The survey was carried out between August 19 and September 17, 2025, with responses from 5,109 out of 12,900 companies.

In terms of profit outlook, 67.5% of Japanese firms operating in Vietnam said they expect to be profitable in 2025, the highest level since 2009. This was also the first time in five years that the figure exceeded the ASEAN average of 65.3%.

Looking ahead to 2026 compared with 2025, 47.6% of respondents forecast an improvement in business profits. However, more than 30% of companies in the transport equipment and auto parts sectors expected their performance to worsen.

Vietnam continued to top ASEAN for business expansion plans, with 56.9% of Japanese firms saying they intend to expand operations over the next one to two years, up 0.8 percentage points from the previous year and marking the second consecutive year Vietnam has led the region.

Many companies cited rising exports and expanding domestic demand as key reasons for expansion, alongside plans to strengthen sales functions.

The proportion of firms planning to scale back operations in Vietnam rose to 4.2%, up 1.4 points from the previous year, while 0.7% said they were considering relocating to a third country, up 0.4 points.

Regarding the impact of additional U.S. tariffs, 33.8% of companies exporting to the United States expected negative effects from the policy, though many said they were still seeking ways to maintain exports.

Local procurement accounted for 38.1% of total sourcing, up 1.5 points from a year earlier. Procurement from local Vietnamese suppliers reached 18.3%, the highest level since the survey began, while companies said they aim to further expand local sourcing to a stable 49.4%.

Despite generally positive business sentiment, 48.2% of respondents said recruitment had become more difficult over the past two years. Labor shortages were particularly severe in the manufacturing sector in northern Vietnam, amid intensifying competition for workers from Chinese, South Korean and Taiwanese firms.

Japanese companies rated Vietnam highly for its growth potential, low labor costs and political and social stability compared with other ASEAN countries. However, they expressed concerns over administrative procedures and an underdeveloped legal framework.

Shortage of skilled labor

Industry experts said labor shortages, especially in manufacturing, pose a growing challenge as the sector is widely regarded as the backbone of Vietnam’s economy, contributing significantly to GDP growth, exports and FDI attraction.

Behind relatively strong growth figures, however, lies a deepening mismatch between labor supply and demand, particularly for skilled workers, technicians and mid- to senior-level managers. This has emerged as one of the biggest bottlenecks to the sector’s competitiveness and future growth.

Vietnam does not lack workers overall, experts said, but manufacturing faces the issue of labor structure and quality. While companies can still recruit unskilled labor, they struggle to find skilled machinists, technicians, production engineers, automation specialists and experienced line managers.

The shortages are most evident in three areas: mid-level technical workers such as CNC machine operators and robotics technicians; production, quality and maintenance engineers capable of working in high-tech environments; and factory managers with modern governance skills and familiarity with international standards.

A representative of a foreign-invested manufacturer in Bac Ninh province said a factory can be built within a year, but developing a qualified team of engineers, line leaders and supervisors can take three to five years. Companies face labor competition not only from domestic firms but also from other foreign-invested enterprises.

Domestic companies, which are generally weaker in branding, remuneration and working conditions, face even greater challenges. Many small and medium-sized firms have been forced to scale back operations or remain in low-value-added segments due to a lack of qualified personnel to upgrade technology.

“If Vietnam fails to solve the human resources problem, it will struggle to move up the global value chain. Technology can be purchased and factories can be built, but people cannot be imported at scale,” the representative said.

In practice, foreign investors considering expanding production in Vietnam are no longer focused solely on labor costs, but are increasingly concerned about the long-term availability of high-quality human resources. Without timely and adequate solutions, labor shortages could become the biggest obstacle to Vietnam’s industrialization goals and sustainable growth over the next decade.