Japanese firms’ Vietnam hassles: labor turnover, power supply, legal transparency

Rising labor costs, high labor turnover, power supply instability, complicated procedures, and weak legal transparency are issues hassling Japanese firms in Vietnam, says the Japan External Trade Organization (JETRO) in a report released Friday.

The 2023 edition of "Survey on Business Conditions of Japanese Affiliated Companies Overseas” features over 300 comments from Japanese firms.

The report shows 62.4% of survey respondents are concerned by complicated administrative procedures, 61.1% by rising labor costs, 59.1% by weak legal framework transparency, 53.7% by complicated tax procedures, 44.3% by unclear policy implementation, and 41% by visa and work permits.

It says the advantage of affordable labor in Vietnam has been fading with rising labor costs. It notes that firms find it hard to recruit enough employees amidst stiff competition from other foreign businesses.

Respondents have also complained that announcements of power cuts were made too late; and that the slow deployment of the National Power Development Plan VIII (PDP8) has created uncertainties about the potential and development path of Vietnam's electricity system.

The report mentions slow issuance of investment documents, complicated documentation related to fire safety that inhibits new investments, high usage of paper documentation and complicated refunding of value added tax (VAT) as issues impacting Japanese firms’ finances.

It highlights several different costs that can be considered bribery disguised as consultation fees.

Carbon reduction commitments

The report says 34.4% of Japanese firms in Vietnam have been making strong carbon reduction efforts, up five percentage points year-on-year. The figure is higher than that of Laos with 31%, Sri Lanka with 33.3%, Cambodia with 28.4%, Myanmar with 28.8%, and Hong Kong-Macau with 26.8%.

Besides, 38.3% of firms have yet to make any moves on carbon reduction but have plans to do so in the future; while 27.3% of firms are yet to make any plans.

The JETRO report highlights several “major problems” related to an underdeveloped legal framework including the evaluation of carbon reduction results, technical standards of carbon reduction, restrictions related to rooftop solar power, and low electricity prices (versus regional peers) that discourage investments in renewable energy.

Other issues that find mention include underdeveloped traffic infrastructure leading to high usage of motorbikes and local businesses and citizens' low awareness of carbon reduction.

Answering an The Investor query about low electricity prices that might discourage power development investors, Nakajima Takeo, chief representative of JETRO Hanoi, said it was a complicated issue, acknowledging that increasing power prices may lead to negative impacts.

However, low power prices make it hard for investors to recover their investments and may make consumers use electricity with low awareness of saving power.

A feasible solution would be to increase the power prices for some situations to help reduce the grid’s workload and motivate economy in power use, he added.

The Vietnamese government should establish a suitable price range that not only ensures people's livelihoods and economic growth, but also encourages investments in the electricity sector, he said.