The Vietnamese Government should issue support policies to help increase local content ratios for raw materials and parts, speakers said at a recent seminar in Ho Chi Minh City .

Yasuzumi Hirotaka, executive director of Japan External Trade Organisation (JETRO), said that Vietnamese businesses should consider the supply of locally produced raw materials and parts as a survival matter since this would be a decisive factor in retaining and attracting foreign investors, including Japanese.

The increase of local content ratios for raw materials and parts would help Vietnamese SMEs cut production costs and improve their competitiveness.

According to a survey by JETRO, the localisation rate in Vietnam is only 28 percent, while the ratio in China is 61 percent, and Thailand 53 percent.

Although many foreign companies are eager to find long-term investment opportunities with Vietnam , they hesitate because of Vietnam 's underdeveloped support industries.

Pham Ngoc Hung, deputy chairman of the HCM City Union of Business Association, said foreign investors often have to import materials and components from abroad, which is detrimental to production and product prices, making it difficult to compete with rivals.

"This makes it difficult for Vietnam to call for investment from big Japanese businesses," he added.

Japanese companies look to Vietnam because of cheap labour. However, the meeting’s participants said this is not sufficient because the support industry remains underdeveloped.

Hirotaka asked the Vietnamese Government to create a support policy to promote human resource training in industry.

Japanese investors are also concerned about low legal compliance, unclear tax and fee regimes, and informal costs.

A JETRO survey of Japanese-affiliated companies in Asia and Oceania pointed out that administrative procedures in Vietnam are complicated, followed by Myanmar and Bangladesh .

In addition, the cumbersome tax system in Vietnam was just behind India .

Hirotaka said that "tax difficulties and entanglements can cause big risks for trading activities of businesses."

JETRO surveyed Cambodia , Laos , Myanmar , Vietnam , Bangladesh , India , Pakistan and Sri Lanka .

Investors also became frustrated when laws and decrees were changed frequently and not implemented in a consistent manner across Vietnam .

They added that slow administrative processing and the requirement for y duplicates of many papers in the central region and localities are big challenges.

Hirotaka warned that Vietnam would lose investors if it did not improve the investment environment.

However, it is forecast that in the future Japanese businesses in the fiber and manufacturing sector will move their factories and distribution systems from China and Thailand to Vietnam , Indonesia and Philippines .

Apart from key areas such as HCM City, Dong Nai, Binh Duong, Long An and Ba Ria-Vung Tau, investment destinations would also include the Mekong Delta region, Binh Phuoc, Lam Dong and the Northern region.

According to the Foreign Investment Agency, among the 10 biggest FDI projects in Vietnam last year, six investment projects were from Japanese businesses in sectors such as real estate, manufacturing and processing, logistics and transport.

Hung said 60 percent of Japanese businesses can generate profits from operations in Vietnam . The percentage is higher than in China (57.2 percent).

Nearly 66 percent of Japanese enterprises in Vietnam have plans to expand business in one or two years.

As of June this year, Japan had 1,990 investment projects in Vietnam with total investment capital of 33 billion USD. Newly registered capital of Japan in the first six months of this year was 4 billion USD and continues to increase.-VNA