JETRO survey: Japanese firms procuring more locally in Vietnam than in Malaysia

06, Mar. 2019

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TOKYO, NNA – The level of local content utilized by Japanese companies in Vietnam surpassed that in Malaysia for the first time in 2018 as both emerging economies are vying to act as a regional supply chain hub, an annual survey by the Japan External Trade Organization showed.

The average rate of local procurement by Japanese firms in Vietnam rose to 36.3 percent last year from 27.9 percent in 2012, while it fell in Malaysia to 36.1 percent from 42.4 percent over the same period. The increase in Vietnam was the largest after India’s among Asian nations surveyed.

NNA compared the figures between 2018 and 2012 to see the longer-term trend.

More Japanese manufacturers are operating in Vietnam, taking advantage of lower costs and the geographical proximity to growing consumer markets in Southeast Asia.

Those Japanese companies largely rely on Taiwanese and South Korean suppliers operating in the country, which has led to a higher rate of procuring materials and parts locally, Hiroyuki Nitta, deputy director of the Asia Pacific division at JETRO’s Overseas Research Department, said in a telephone interview. Japanese procurement from Vietnamese suppliers remains low, he said.

Higher local content was seen in the chemical and pharmaceutical sectors, as well as production of vehicles and precision equipment, according to data provided by Nitta.

The number of Japanese operations in Vietnam stood at 1,816 as of October 2017, up from 1,211 in 2012, according to the latest available data released by Japan’s Ministry of Foreign Affairs.

The proportion of local content in Vietnam is still below that in China at 66.3 percent, 57.2 percent in Thailand, 55.6 percent in India and 42.0 percent in Indonesia, according to the JETRO survey conducted from October to November 2018.

That is because the Vietnamese government has not found an effective way to support specific growth sectors and small businesses, Nitta said.

Of the Japanese firms sourcing materials and parts in Vietnam, just 39.7 percent procured from domestic companies in 2018, the second lowest rate in Asia, the survey showed.

Indonesia and Malaysia have seen their local content procurement rates at Japanese companies decline, it showed.

Malaysia offers tax benefits to companies which export their products, which has discouraged those firms from supplying parts and materials to locally based manufacturers, Nitta said.