Chinese Companies Are Pushing Out Japanese Rivals in Vietnam

Workers at an air conditioner factory in northern Vietnam's Hung Yen province represent thousands employed by Japanese manufacturers who've made the country their manufacturing hub. But their dominance is under siege.

A new survey by the Japan External Trade Organization (JETRO) reveals Japanese manufacturers in Vietnam are feeling the heat from an influx of Chinese investors spanning everything from carmakers to beverage companies. This trend isn't confined to Vietnam—it's reshaping competitive dynamics across ASEAN.

The Numbers Tell the Story

For the past decade, Vietnam served as the crown jewel of Japan's "China Plus One" strategy. Low labor costs, political stability, and membership in trade agreements like the Trans-Pacific Partnership made it an obvious choice for Japanese manufacturers seeking to diversify their supply chains.

But the game has changed. Chinese companies are flooding into Vietnam with deeper pockets and aggressive expansion plans. The result? Japanese companies report that recruiting skilled local talent has become significantly more challenging, with Chinese competitors often offering higher wages to poach experienced workers.

This is particularly acute in automotive and electronics manufacturing, where technical expertise commands premium salaries. What was once a comfortable cost advantage for Japanese firms has evolved into a bidding war for human capital.

Beyond Vietnam's Borders

This isn't just a Vietnam story. Similar patterns are emerging across Thailand, Indonesia, and Malaysia as Chinese companies accelerate their overseas investments. The drivers are clear: escalating US-China trade tensions and the urgent need to diversify supply chains away from mainland China.

Yet here's what's striking: despite intensifying competition, Japanese companies aren't retreating. JETRO's survey found that over 70% of respondents plan to expand their ASEAN operations within the next three years. They're doubling down rather than pulling back.

The Broader Implications

This shift reflects more than simple market competition—it signals a fundamental realignment of Asian manufacturing. Chinese companies, flush with capital and government support, are no longer content to serve as the world's factory. They're becoming global competitors with their own supply chain ambitions.

For multinational companies relying on Asian manufacturing, this creates both opportunities and headaches. More competition typically drives innovation and efficiency. But it also means higher costs and more complex supplier relationships.

The geopolitical dimension can't be ignored either. As Chinese companies establish deeper footholds in ASEAN, they're creating new dependencies and influence networks that extend well beyond economics.

What This Means for Business

Companies with Asian supply chains should prepare for a more competitive landscape. The days of treating ASEAN as a low-cost manufacturing haven with limited competition are ending. Success will increasingly depend on technological differentiation, local partnerships, and agility in adapting to changing market dynamics.

For investors, this trend highlights the growing sophistication of Asian markets. What started as cost arbitrage is evolving into genuine innovation ecosystems where the best companies—regardless of origin—will thrive.