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Japanese automakers may leave

Released at: 14:00, 20/02/2017

Japanese automakers may leave

Illustrative image. Photo: toyotatayninh.net

Ongoing difficulties make Japanese firms consider moving away from Vietnam, dialogue session hears.

by Khanh Chi

Japanese automobile enterprises have been considering moving away from Vietnam, a recent dialogue session between the Ho Chi Minh City Customs Department and Japanese enterprises doing business in Vietnam heard.

They are able to move to neighboring countries such as Indonesia, Thailand or Malaysia, according to Mr. Takimoto Koji, Head Representative of the Japan External Trade Organization (JETRO) in Vietnam.

Reasons include the underdevelopment of support industries over the last ten years and the country's low localization rate. Most components for support industries must be imported and these only meet a small part of demand among Japanese enterprises.

The slow development of Vietnam’s support industries will lead to Japanese automobile manufacturers choosing to instead import completely-built-up vehicles instead of importing components and assembling in Vietnam, because importing components raises costs.

This may occur when ASEAN countries reduce automobile import taxes to 0 per cent. Low-cost vehicles from the ASEAN region will them arrive in Vietnam in massive numbers and Japanese motor cars will struggle to compete.

According to Mr. Takimoto, all four Japanese automobile manufacturers in Vietnam - Toyota, Mazda, Honda, and Suzuki - want to import vehicles from other countries in the ASEAN region to sell instead of importing components for assembly, due to higher profit margins.

Production in Vietnam currently stands at around 250,000 units each year, compared to about 2 million units in Thailand. Manufacturers earn higher profit once production exceeds 200,000 units annually. As the 250,000 is split between many brands, profit is low.

Japanese enterprises also face a number of other difficulties, such as rising labor costs and unofficial costs.

About 60 per cent of Japanese enterprises say that higher labor costs and other issues, such as the incomplete legal framework, the inconsistent application of existing laws, incomplete infrastructure (logistics, electricity, and communications), and complex tax procedures create higher risks. Some Japanese firms have said that administrative procedures such as licensing remain complex, according to a report from JETRO.

Mr. Yoshihisa Maruta, General Director of Toyota Vietnam, told a press conference in mid-2015 that the company was undecided about whether it will assemble, manufacture or import automobiles when import duties on vehicles from ASEAN countries fall to 0 per cent in 2018.

In 2016, Japanese investors invested more than $2.1 billion in all sectors Vietnam, with the number of new projects increasing sharply, reaching 336. Mr. Koji said this trend will continue in 2017 though the registered capital may not rise. Services and the production of consumer goods associated with lifestyle are expected to be attractive to Japanese investors.

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