The Philippines improved its ranking by a notch to eighth place among the most promising countries for Japanese investments in 2025, despite growing concerns about the country’s labor costs.

Based on an annual survey by the Tokyo-based Japan Bank for International Cooperation (JBIC), a copy of which was seen by Manila Bulletin, 7.1 percent, or 24 out of 338 Japanese companies, identified the Philippines as the most promising destination for their overseas business operations in the medium term, or over the next three years.

This is slightly lower than the previous year’s figure of 25 out of 351 companies, although the vote share was maintained at 7.1 percent. The Philippines ranked a lower ninth place in the 2024 survey, after landing also at eighth spot in 2023.

Among the 24 Japanese firms that voted for the Philippines, a quarter are in the automotive sector, followed by general machineries (20.8 percent), and electrical equipment and electronics (16.7 percent).

These companies affirmed their commitment to do business in the country largely due to its “inexpensive source of labor” and its “future growth potential.”

Among the automotive companies surveyed, respondents noted that the Philippines continues to remain attractive given the dominance of Japanese brands in the market.

“Combined with the fact that, compared to other ASEAN [Association of Southeast Asian Nations] countries, fewer Chinese companies have entered the market and competition has not intensified, indicating expectations for the market,” said JBIC.

In addition to the strength of the local market, companies cited the quality of the country’s skilled workforce and its usefulness for risk diversification into other countries as advantages.

Meanwhile, Japanese companies continue to be alarmed by the country’s rising labor costs and difficulties in securing management staff, underscoring broader human resource issues.

Persistent concerns over security, the tax system, the legal system, and underdeveloped local supporting industries were also flagged as issues.

Despite this, JBIC noted that companies are still intent on maintaining their manufacturing base in the Philippines “because economic growth continues.”

Within the Southeast Asia region, the Philippines ranked fifth in the JBIC survey, trailing Vietnam (third), Indonesia (fourth), Thailand (sixth), and Malaysia (seventh).

India remained the most promising country for Japanese investors for the fourth consecutive year, while the United States (US) ranked second.

In terms of promising countries in the non-manufacturing sector, the Philippines retained its fifth-place ranking, with 18.3 percent, or 21 out of 115 companies, preferring the country.

According to JBIC, the Philippines’ strong ranking in this category is largely driven by the support of Japanese firms in the transportation sector.

India topped the list, followed by the US, Indonesia, and Vietnam.

Meanwhile, the Philippines climbed from 12th to ninth in the category of countries or regions where Japanese firms plan to strengthen or expand operations, after being identified by 13.2 percent of 295 companies.

The US led this ranking, with India and China close behind.