After a long-standing collaboration, Vietnam and Japan have made remarkable strides in trade and investment. Commemorating the 50th anniversary of diplomatic relations between the two nations, the Vietnam News Agency speaks with Nakajima Takeo, chief representative of the Japan External Trade Organisation (JETRO) Hanoi, to gain deeper insights into future advancements aligned with the global trend of green growth.

Reporter: What do you think about the development of Japan - Vietnam relations over the past 50 years, especially in the economic area?

Nakajima Takeo: The two nations established (or resumed) diplomatic relations in 1973. However, due to the post-war chaotic situations in Vietnam, the economic and business ties did not happen in substance.

Japanese firms began investing in Vietnam around 1995, in which was the first investment boom, after the US lifted the economic sanctions in the mid-1990s. However, the Asian currency crisis that began in 1997 weakened the power of ASEAN, leading to the shift of Japanese investments to China which emerged rapidly as a production centre.

In 2006, Vietnam joined the WTO, drawing attention to its superiority and triggering a wave of Japanese investment in the country, which was the second investment boom. Then, after the Lehman Shock and financial crisis, investment in Vietnam further accelerated and diversified around 2012 and beyond, making it the third investment boom.

Japan now ranks third in terms of investment value, second in terms of project numbers, and first in terms of investment execution.

Most Japanese investments were in the manufacturing and exporting sectors in the early stages of economic relations between the two. Later, more non-manufacturing firms started businesses in retail, trade, hotels, professional services, and IT industries.

On the other hand, the entry of Vietnamese IT firms into the Japanese market shows significant growth in Vietnamese business performance and capability. FPT, CMC, Rikkei, and other IT firms opened businesses in Japan in the last ten years, taking advantage of Japan's engineer shortages.

As the Vietnamese businesses grew, Japanese enterprises started targeting the domestic markets.

The merchandise trade between the two has doubled in ten years. For Japan, Vietnam is the ninth largest trading partner globally and second in ASEAN. For Vietnam, Japan is the fourth biggest trading partner.

Vietnam is an indispensable country for Japan to integrate its supply chain network, where Japan exports parts and materials to the country, assemble them, and reexport to Japan for the final products. We witness more Japanese firms transfer value-added processes to Vietnam.

Reporter: With numerous Japanese enterprises channelling investments into Vietnam, how would you assess the effectiveness of these investments? Please provide your insights on the investment landscape in Vietnam, including potential future investment sectors which Japanese companies hope to invest in?

Nakajima Takeo: According to JETRO's surveys last year, 60% of Japanese firms in Vietnam are profitable, showing a steep recovery during the COVID-19 pandemic, while the same proportion plans expanding operations here, which is the highest among Japanese companies in the ASEAN.

The surveys also point out that Vietnam was the second-most favourable FDI destination, next to the US, for Japanese firms. That is the sixth consecutive year that Vietnam ranked second, which is impressive.

For future investments, we plan to move capital from metropolitan regions to suburban cities, meaning that due to higher costs in Hanoi, HCM City, Da Nang, Hai Phong, Japanese companies are trying to invest in rural areas or suburban cities.

Also because of the increase in costs, there will be more localisation in human resources, leadership, and procurement. And it is happening already. Japanese firms are trying to look for Vietnamese partnerships to procure more, instead of importing from China or Thailand.

Furthermore, we will invest in adding more value in manufacturing to counter cost increases, with Japanese firms aiming for upstream and downstream expansion. The upstream activities include material procurement and production, while the downstream is marketing, delivery, or other services.

Japan is attempting to make the supply chain more integrated, including a trend of transferring manufacturing functions from China or Japan to Vietnam to cut costs and shorten the delivery time.

We also focus on digital transformation as IT and digital are Vietnam’s strengths.

Also dedicating to that, investing in start-ups is a new trend among Japanese investors. There are many Japanese companies interested in Vietnamese start-ups, with many good ones in the fields of e-commerce, healthcare, gaming, and logistics.

The supporting ecosystem is still underdeveloped, but it attracts investment and collaboration requests from Japanese firms.

Solving social issues of energy, transportation, healthcare, education, and finance is also an important investment space. There are many social issues Vietnam should tackle now, and Japan has already undergone problems like energy shortages and traffic jams, so we can share our experience with the Vietnamese Government.

Lastly, the consumer market is on target. To meet and serve the growing middle class and affluent people, Japanese companies have invested more to capture opportunities in the market.

In the last five years, Vietnamese households have increased their ownership of air conditioning, washing machines, and refrigerators. They spend money on food, education, tourism, healthcare, and entertainment. Japanese foods, houseware, baby goods, beauty care products, and processed foods will have more chances to penetrate the market.

Reporter: The two governments have agreed to boost cooperation towards green growth, could you elaborate on the collaborative undertakings and plans for cooperation between enterprises on both sides?

Nakajima Takeo: The emission of greenhouse gas (GHG) and CO2 of Vietnam has increased over the last 20 years. And now the share of GHG and CO2 of the country reaches more than 15% in the ASEAN, which was only 10% 20 years ago. Every year, Vietnam produces more GHG and CO2 than many other nations.

So there is a lot of room to improve, including environmental protection, energy conservation, and renewable energy (RE), while upgrading Vietnamese fragile legal framework and weak law enforcement.

Japan can help Vietnam develop, as our enterprises have great products and services in energy efficiency and conservation, like LED lighting, building management, air-conditioning, LNG to Power, and hi-tech agriculture. Or firms in the environmental protection sector, including Marubeni in wastewater treatment, Toyota Tsusho and Hukunaga Engineering in recycling, and Nagase in the GHG emission reporting system.

Vietnam also needs more renewable energy like biomass, water, solar and wind power, and many Japanese enterprises, including EREX, JFE Engineering, and Toyota Tsusho, are working in this area.

Also, JICA and other Japanese government agencies are helping Vietnam to make a transparent legal framework to prevent pollution and destruction.

Vietnam has introduced numerous legal frameworks but there are problems in integrating and implementing those policies in businesses.

JETRO is the secretary of the Asia DX subsidy project that provides support to digital transformation trial projects, including green businesses. A dozen projects are financially supported by the Japanese government. And about ten projects underway in Vietnam now, of which some are using digital to reduce pollution and emissions from automation or transportation vehicles.

So greener projects are one of the important pillars of the Asia DX.

We are also secretary of the supply-chain diversification project. We grant financial support to certain projects involving Japanese and Vietnamese collaboration to strengthen the supply chain. Some interesting projects target environment protection, efficiency, and conservation.

Business matching and trade shows in green businesses are also our activities. Our office sometimes opens showcases of Japanese green products, and we invite many Vietnamese buyers or government bodies to look at the products./.