The companies are looking for bigger profits in nearby countries such as Thailand. Japanese automakers may be shifting their production away from Vietnam in the near future due to its poor supporting industries.
Vietnam’s supporting industries have stood still for years and that might cause Japanese companies in the country to change their investment approach, said Takimoto Koji from the Japan External Trade Organization (JETRO), a Japanese government-related organization that works to promote trade and investment by Japanese businesses overseas.
Several automakers intend to stop assembling cars in Vietnam and import whole cars from nearby countries like Indonesia, Malaysia and Thailand instead, Takimoto said.
Car import tariffs between Southeast Asian neighbors are falling rapidly and the new approach will secure bigger profits, he said.
Under a new free trade agreement among the 10 members of ASEAN, car import tariffs were cut from 50 percent to 40 percent last year and will go down to 30 percent next year before being scrapped in 2018.
Japanese companies Toyota, Mazda, Honda and Suzuki are competing in Vietnam’s auto industry, which produces around 250,000 cars a year, a modest number compared to those in nearby countries such as Thailand’s two million cars.
According to experts, an automobile production line only becomes profitable when it delivers more than 200,000 cars a year.
Japan registered $2.58 billion in investments in Vietnam last year, accounting for more than 10 percent of the total FDI pledges made in the country and making it the second biggest foreign investor after South Korea, according to figures from the Ministry of Planning and Investment.
Vietnam’s FDI inflow hit a record high of $15.8 billion in 2016.