In opening a factory in Vietnam, MHI Aerospace is taking a path that more and more companies are taking, driven by cheap labour and relative political stability.

Vietnam also provides easier access to the US west coast than Indonesia, Cambodia and Bangladesh, which are also competing for foreign investment.

A Japan Bank for International Co-operation (JBIC) survey of Japanese companies with overseas operations found that Vietnam beats China and India as the most promising source of cheap labour.

It was significantly ahead of Brazil, Russia and Thailand, a perennial favourite for Japanese investors.

In recent months, Kobe Steel announced a Y100bn ($1.1bn) investment in a steel plant, and Shiseido, the cosmetics company, opened a large factory to supply south-east Asia and China.

Sapporo, the Japanese beer company, plans to open a brewery in 2012. Daiwa Securities, meanwhile,has launched a Y40bn investment trust that will allocate two-fifths of its assets to Vietnam.

Japanese foreign direct investment in Vietnam rose from $153m in 2005 to $1.1bn in 2008 before falling back last year to $568m. That represents 270 per cent growth, in comparison with o­nly 27 per cent growth in investment in China.

Inward investment from South Korea paints a similar picture, growing more than 300 per cent from 2005 to 2008 when it peaked at $1.35bn. Last year investment fell to $590m.

South Korean steelmaker Posco has announced that it will triple its stainless steel output in Vietnam to 285,000 tonnes by 2014. It is also seeking permission to invest $500m in a new electric arc furnace.

Total foreign direct investment into Vietnam hit $9.8bn last year, down from $11.5bn in 2008, but still significantly better than many experts had predicted during the height of the global crisis.

The relatively sustained level of foreign investment, along with the economic momentum Vietnam had built up going into the crisis, helped the economy continue growing at 5.3 per cent, even if that represented a fall from its average growth of 7.3 per cent over the preceding decade.

In the JBIC report, investors cited the booming domestic market and cheap labour as attractions, but remained worried about the country’s overstretched infrastructure, particularly roads and electricity generation.

China’s decision to allow the renminbi to appreciate and the country’s bout of labour unrest – which hit Japanese manufacturers disproportionately hard – are likely to make Vietnam even more attractive to Japanese investors.

MHI’s plant is worth significantly more to Vietnam than the low-tech manufacturers that make up the bulk of its foreign investors.

Higher value-added investments are increasingly important for Vietnam as the easy pickings of industrialisation based o­n cheap labour costs are fizzling out.

“The wave of development over the past decade, which rested primarily o­n shifting low-cost rural labour to higher productivity work in urban centres, may be running out of steam,” Benedict Bingham, the top International Monetary Fund official in Vietnam, said recently. MHI has helped this process by teaching its employees Japanese and then sending them to Japan to learn not o­nly technical skills but also quality control and management.

While MHI was the first aerospace manufacturer to venture into Vietnam, it has already encouraged others to relocate.

For Boeing, facing increasing competition in a market that has been rocked by the global crisis, Vietnam is an attractive prospect.

“We want to be more engaged in Vietnam and they have the capacity and the labour force,” says Ralph Boyce, the president of Boeing south-east Asia.

MHI clearly has ambitious plans for its Vietnamese offshoot. o­nly half the factory floor is being used, and the company has leased a plot with enough room to build another plant of similar size behind the current building.

“At the moment we o­nly do assembly work here with parts from Mitsubishi in Nagoya, but in five or 10 years I hope Vietnam gets the opportunity to manufacture the parts themselves,” said Mr Masuda.