HANOI -- Japan, once the largest source of corporate investment in Vietnam, has fallen to fourth place for the first nine months of 2020, overtaken by more agile rivals from South Korea and China.
Approved foreign direct investment by Japanese companies dropped 43% on the year for that period. While Japan ranks second in cumulative investment, and topped the annual list in 2017 and 2018, it sank to fourth place for 2019.
"As far as I can see, it doesn't look like any large-scale investments by Japanese companies are on the cards going forward, either," said an executive at a Japanese general contractor.
The decline comes even as Japan has striven to forge closer diplomatic ties with Vietnam. Prime Minister Yoshihide Suga chose the Southeast Asian nation for his first official trip this week, and his administration has set up a subsidy program to encourage Japanese companies to diversify their supply networks into the region.
The coronavirus pandemic has hit corporate investment in Vietnam more broadly, with total investment by foreign companies for the nine months through September slumping 19% on the year to $21.2 billion, but Japan's drop-off far exceeded the average. New Japanese investment alone plunged 70%, putting the country in sixth place behind Taiwan and Hong Kong.
Meanwhile, China has gained ground, with investment by Chinese companies picking up since around 2015.
The country jumped into the lead both in new spending and in expanded investment in the first half of 2019, and sits in third place overall in 2020. Chinese companies are believed to channel money into Vietnam through Singapore and Hong Kong as well.
South Korea remains the largest source of corporate investment in Vietnam to date.
Samsung Electronics began making mobile phones in northern Vietnam in 2009 and now operates two massive smartphone factories in the country. Compatriot LG Electronics has shifted production to Vietnam from its home country. South Korean companies are making headway in the country's hotel and retail sectors as well.
About 200,000 South Korean workers are believed to be based in Vietnam, 10 times the comparable figure for Japan. Ho Chi Minh City is home to a sizable "Koreatown" with a high concentration of expats.
In light of these developments, the Vietnamese government has been cozying up to South Korea over Japan.
In late July, Vietnamese Prime Minister Nguyen Xuan Phuc invited the South Korean ambassador to Vietnam, as well as executives from Samsung and other South Korean corporations, for a dialogue. "South Korea is the largest investor in Vietnam, and we want to create favorable conditions for investment," he said.
Vietnam did not hold a similar dialogue with Japan until over a month later. It also resumed business travel and passenger flights with South Korea before Japan.
"To be honest, we want to work with Japanese companies but they make decisions too slowly," said one Vietnamese chief executive. The local heads of Japanese corporations tend to have little authority on big decisions, which, combined with difficulty traveling to and from their Japanese headquarters amid the pandemic, have caused them to fall behind their South Korean and Chinese rivals.
Companies from around the world are considering shifting their supply chains to Vietnam from China amid Beijing's growing tensions with Washington. While the Vietnamese government rolled out the red carpet for Suga, "Japan is slipping in terms of relative economic importance," said an executive from a Japanese trading house.
Speedier decisions could be the answer to reversing this trend.