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Japan to shift investments to Vietnam, Indonesia

Posted: 18 Nov 2011 ?? ?Print Version ?Bookmark and Share

Keywords:Thailand flood? Japan investments? manufacturing?

Japanese companies may shift their investments from Thailand to Vietnam and Indonesia due to the Thailand flood, according to a Bloomberg report. The recent flooding, the worst the country has experienced in 70 years, has disrupted global production and supply chains.

Japanese firms are Thailand's biggest foreign investors and the recent trend of accelerating investment into Thailand will slow down even though the country is an ideal destination for investors, the report said.

The report also said the tragedy has rippled through the supply chains of Japanese auto and electronics makers, as parts shortages affected operations across the globe.

Takahiro Sekido, Credit Agricole's chief economist for Japan, was quoted saying "Executives recognize the concentration risk after the floods."

Tokyo's Dai-ichi Life Research Institute economist Tohru Nishihama said that Thailand's neighboring countries, specifically Vietnam and Indonesia, are set to attract more Japanese investments. The two countries attracted more foreign direct investment than Thailand last year.

Thailand enjoyed steady growth from 2000 to 2008, averaging more than 4 percent CAGR per year, due to its well-developed infrastructure, a free-enterprise economy, generally pro-investment policies and strong export industries. The country exports mostly machinery and electronic components, agricultural commodities and jewelry. These sectors continue to drive the economy, accounting for as much as three-quarters of Thailand's GDP.

Vietnam, on the other hand, is also a magnet for foreign direct investment, the report said. The success of doing business in Vietnam is greatly facilitated by the ability to put through effective corporate structure and financial management system to deal with foreign investment laws, taxation, accounting and foreign exchange issues in Vietnam.

The investment registration process and tax management in Vietnam is decentralized, with the municipal and provincial authorities having significant discretions on how businesses are established and managed from a tax and accounting angle. Having a good local partner, experienced staff and localized professional support would greatly assist in the initial startup stage.

IHS: Thai floods drown electronics sector
The tragedy is not contained in Thailand, but has also hit key sectors of the electronics industry such as automobiles, car components, cameras, hard drives, and analog and discrete semiconductors. Read the whole article here.

Bloomberg's report also quoted Yoichi Yajima from the Japan External Trade Organization (Jetro) saying that he doesn't expect a big withdrawal of investment from Thailand as the country's infrastructure and industrial clusters make it an easier place for many Japanese companies to operate.

Thailand accounted for about 3.2 percent of Japan's cumulative foreign investment in the past two years, the second largest after China's 12.6 percent, the report said.

Thailand's Prime Minister Yingluck Shinawatra has proposed a $4.2 billion (130 billion baht) budget for reconstruction and future flood prevention. She also seeks to reassure investors that Thailand remains a safe place for business.

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