Inviting Japanese SMEs
SMEs inLarge Numbers
For mutual industrial development ofVietnam and Japan
Kenichi Ohno (VDF & GRIPS)
Hanoi, March 22, 2012

Summary & Conclusion
Inviting a large number of Japanese manufacturing SMEs toVietnam will greatly benefit the industries of both countries.
 Governments (central & local), business organizations, andindividual firms on both sides show strong interest. Mutualvisits are becoming common.
 However, Vietnam is not alone in trying to absorb
manufacturing FDI for industrialization. For Japanese
investors, many destinations are available other thanVietnam.
 At present, many efforts to attract Japanese SMEs are
made on both sides; they must be integrated into acoherent policy network.
Summary & Conclusion (cont.)
To translate strong mutual interest into actual investment,
we must go beyond general discussion and start mutual
learning and preparation at the operational level.
- Have regular information sharing and exchange among
investment officials and experts of two countries.
- Linkage with Japanese support organizations (METI, local
governments, SME Agency, chambers of commerce &industry, Embassy, JETRO, JICA, etc.)- Try new ideas for attracting Japanese SMEs
- Strengthen local industrial parks as receivers of Japanese
investment.
- Enhance planning and investment-related capabilities ofhost provinces and cities.
- Build efficient logistics, etc.

Situations in Japan
Problem of ageing and business continuity for
manufacturing SMEs
 Rise of emerging economies; enhanced
technology of Korea, Taiwan, China
 Strong pressure for cost reduction
 Yen appreciation
 Power shortage
 Delay in free trade effort (FTAs, EPAs, TPP) Risk of supply chain disruption (earthquake, Thai floods,etc.)Japanese large companies are moving abroad The number of Japanese manufacturing SMEs is decliningSurvey of Manufacturing SMEs in Osaka(Regarding Emerging Economies in Asia)
Conducted by Osaka Foundation for Trade & Industry; Oct.
2010; 180 firms responded.
 Already exporting or invested in Asian emerging economies(40.6%), planning or interested (26.3%), no interest orreply (33.2%)
 Target customers: overseas Japanese firms (53.0%),
overseas local firms (46.6%), overseas rich citizens(21.7%)
 Future marketing strategy: local sales agency (41.1%),
Japanese sales agency (35.6%)、FDI (14.6%), local OEM(12.6%), JV with local firm (12.3%)
 Strength of your firm: high quality (56.8%), productdevelopment tailored to customer needs (43.2%), only-one
technology (31.6%)
 Problems: finding local partners (52.8%), lack of local
information (51.7%), finding local needs (40.0%), local
marketing (39.4%)
Survey of Manufacturing SMEs in Osaka(Regarding Vietnam)
Conducted by Osaka Chamber of Commerce & Industry;Jan. 2012; 55 firms interested in Vietnam responded.
 Expected role of Vietnam: production site (75.0%),
domestic sales (55.6%), input procurement (27.8%)
 Future business expansion: Hochiminh City (70.9%), Hanoi(60.0%), Danang (27.3%)
 Problems: infrastructure (50.9%), securing high-quality
staff (45.5%), government policy (40.0%), lack ofJapanese staff with local knowledge (34.5%), lack ofsupporting industries (34.5%)
 Want to locate in industrial parks designated for JapaneseSMEs if conditions are right (38.2%; for small firms, 70%)
 Demands for designated industrial parks: good
infrastructure (30.9%), rental factories (30.9%), goodliving condition (27.3%), one-stop service in Japanese(25.5%), matching service with local partners (25.5%), onsite customs clearance and bonded warehouses (25.5%)
Policy & Institution building in Japan
Previously, Japanese government and related organizations
were reluctant to support overseas investment of SMEs forfear of losing industrial base; however, a few years ago,
policy shifted to active support.
 Council on Overseas Business Support for SMEs (chaired byMETI minister, estab. Oct. 2010, meets twice a year)
 “Guideline for Overseas Business Support for SMEs”
approved Jun. 2011; local governments and relatedorganizations were asked to draft promotion plans.
 JETRO: investment support, seminars, matching services,
reverse trade fairs, etc.
 JICA: Survey on SME overseas investment in Vietnam(2011); initiation of business F/S support for SMEs (2012)

Situations in Vietnam
Despite high growth in the past, the quality of growth islacking for Industrialization and Modernization by 2020
(weaknesses in productivity, technology, human resource,
investment efficiency, income gap, environment,
macroeconomic balance, etc.)
 Under globalization, AFTA’s 2015 deadline and rise of othercountries (incl. Myanmar) may erode Vietnam’scompetitiveness. There is a risk of exodus of manufacturing
FDI from Vietnam.
 Wage increase, shortage of high-quality human resource.
 Vietnam’s policy capability and business competitivenessare much weaker than Thailand, Malaysia, etc.
 A radical policy reform is required for internal value
creation and strong competitiveness. Without policy action,
Vietnam is likely to fall into a middle income trap.
Political Decisions & Agreements
SEDS, SEDP: “To become an industrial country by 2020”
 Supporting Industry Development Master Plan (approved2007, but needs revision) Designation of industrial parks for Japanese supporting
Industry firms by the Vietnamese government (Haiphong,Baria-Vungtau)
 Visit of President Truong Tan Sang to Japan (Jun. 2011)
 Visit of PM Nguyen Tan Dung to Japan; Vietnam-Japan PM
Joint Statement (Oct. 2011)
 Active mutual visits by local governments and businessorganizations—Keidanren, Kankeiren, Osaka, Hamamatsu,
Baria-Vungtau, etc.


Japan’s Industrial Policy Support inVietnam
VDF: introduction and analysis of Japanese monozukuri,
integral manufacturing, supporting industries, comparisonof policies in neighboring countries, etc.
 Vietnam-Japan Joint Initiative (2003-, currently Phase 4)
 “Supporting Industry Promotion Action Plan” (AmbassadorHE Sakaba, 2008-2010) and its implementation (manyongoing projects)
 “Vietnam Industrialization Strategy” (Ambassador HE
Tanizaki, 2011-): Concentrated promotion of a small
number of industries through bilateral cooperation
Neighboring Countries andJapanese Companies
Despite earthquake and Thai flood damage, Japanese FDI in
China & ASEAN5 rose sharply in 2011. At present, Japanesemanufacturing SMEs are particularly interested in Vietnamand Thailand.
 Thailand: despite political instability and floods, Japanesefirms continue to appreciate Thai advantages in supporting
industries, skilled workers, and good policy.
 Myanmar: as democratization proceeds, foreign investors aregreatly interested in Myanmar. Japanese ODA and policy
support are resuming.
 China: Japanese FDI has increased in response to China’s
new policy to attract high-tech and capital-intensive FDI.
 Indonesia: FDI in automobile and motorcycle has increased.
 Cambodia, Philippines, India, etc.: building industrial parks
designated for Japanese firms.

Entry Points for Attracting a Large
Number of Japanese SMEs
Expanding information exchange and discussion
2. Trying new ideas for assisting Japanese SME to come
3. Strengthening local industrial parks as receivers ofJapanese SMEs
4. Leveling up of planning and FDI marketing capabilities ofhost provinces and cities
5. Building efficient logistics
6. Securing power supply
1.

1. Expanding Information Exchangeand Discussion
For both sides, lack of mutual information is a bottleneck inpromoting Japanese SME investment in Vietnam.
 A regular mechanism for information exchange anddiscussion should be set up at the operational level(responsible officers at local governments and relatedorganizations).
 In Japan, a loose network should be created among SME
overseas investment support mechanisms available frommany organizations (not just policy framework but forimplementation)
 In Vietnam, improve information on good industrial parks,
and potential buyers and business partners. Existing
databases should be improved and expanded.
2. Ideas for Assisting Japanese SMEs
to comeRespond to concrete requests from individual firms or firm
surveys. Support measures should be tailored to different
needs of firms which may have different investment
motives.
 Generally speaking, SMEs face many problems such as lackof overseas experience, language barrier, anxiety about
local policies and regulations, etc. SMEs need stronger
support than large firms.
 An effective supporting mechanism for FDI should beestablished on the Vietnamese side. Government’s roleshould shift from a policy maker and regulator to a providerof business supporting services.
Examples of Ideas
Industrial parks specializing in Japanese SMEs should hire
an experienced Japanese expert (for advice on hardware
and software, and bringing Japanese firms).
2. Provide rental factories for SMEs (design of area size,loading deck, etc. should be suitable for tenant firms).
3. Strong business support in Japanese language, including
matching services with local buyers and business partners.
4. Encourage investment in groups (many SMEs can share
information, administration, accounting, worker facilities,
interpreter, etc. and minimize risk).
1.

Ex. Two Japanese business leaders, a manager and a consultant,are inviting about 100 IT-related SMEs to come to Long Duc
Industrial Park in Dong Nai (being built by Sojitz).

3. Strengthening Local Industrial
Parks as Receivers of Japanese SMEs
To receive Japanese SMEs, special effort in both hardware
and software is required from industrial park managementcompanies.
 VDF’s “Industrial Park Checklist”: these items are common
sense to Japanese but may be useful for Vietnamese IPdevelopers.
Access to port, airport, large cities; soil quality; power; water; telecom;
waste water treatment; rental factories; workers; engineers;
professionals; one-stop services; customs clearance; business services(banking, couriers, etc.), high-quality residence, Japanese school, hospital,
Japanese restaurants, recreation, green environment, investment
incentives, land rent and management fee

To receive many supporting industry firms, first attract ananchor firm (large-scale assembler) to produce the Canon
effect.
 ODA may be used to improve local industrial parks. While
this may cause conflict of interests with Japanese industrial
park developers, the problem will disappear if Vietnam
succeeds in attracting a large volume of Japanese FDI.
4. Leveling Up Capabilities of Host
Provinces and Cities
Strong political commitment of the People’s Committees ofHaiphong, Baria-Vungtau, etc. to the attraction of Japanese
FDI is highly appreciated.
 However, there is room for improvement in industrial
planning, investor support, FDI marketing, and otheractions in implementation.
 Level up capabilities through the following cooperation.
 Cooperation with operational level in Japan (localgovernments, business organizations, JETRO, JICA, etc.) Inter-provincial cooperation in North and South (developmany provinces together, not just one)
 Link with Supporting Industry Action Plan (WT4-1 ofVietnam-Japan Joint Initiative Phase 4)
 Link with Vietnam Industrialization Strategy5. Building Efficient Logistics
To remain competitive in Asia, Vietnam must have efficienttransport infrastructure in both hardware and software,beating other countries in transport time and cost.
 Lach Huyen Port and Second Hanoi-Haiphong Highway are
under construction in the North, and Cai Mep-Thi Vai Portand Southern Highway are being built in the South. Theselarge-scale infrastructure projects will greatly upgrade
Vietnam’s logistic systems.
 Using such infrastructure as a core, Vietnam should create
integrated and internationally competitive industrial regionsin the North and South.
 For this purpose, drafting of comprehensive regional
development plans and setting of concrete logistic targets
will be useful.
6. Securing Power Supply
Industrialization is impossible without stable supply ofelectricity.
 In the long run, development of fire, hydraulic, nuclear, andnew-energy power generation, based on a master plan andsupported by international cooperation, is indispensable.
 In the short run, an arrangement should be made to supply
power stably to prioritized industrial parks, to reduce therisk of blackouts to zero.