The company plans to invest $38m (€24.4m) to build a factory in the country that will serve the fast growing markets of South East Asia.
Shiseido will target the ASEAN region from its base in Vietnam where it will manufacture mid-range and economically priced skin care products.
Construction of the 21,400m² production facility will begin at the end of the year and the site should become operational by December 2009.
High sales growth potential Developing its presence in the ASEAN cosmetics market is part of Shiseido's plan to deliver sales growth by expanding its businesses oversees, which now account for around 36 per cent of net sales.
Vietnam in particular is a highly attractive target for foreign beauty firms as the cosmetics market has grown annually at around 14 per cent between 2001 and 2006, according to Euromonitor.
However, success is not guaranteed in Vietnam as Shiseido will face stiff competition from some big personal care players including Unilever, Procter & Gamble and Colgate-Palmolive.
They have already captured half of the market and beaten other foreign rivals for customer loyalty leaving L'Oreal and Johnson & Johnson with a collective market share of only 7 per cent, according to Euromonitor.
In addition, like other countries in the ASEAN region, the overall size of the Vietnamese market remains small at €388m. China still core focus Shiseido will be looking to make its most significant oversees gains in China where it aims to achieve annual sales growth of 20 per cent over the next three years.
In the nine months ending December 31, Shiseido's sales increased 3.7 per cent to ¥536.73bn (€3.4bn) due largely to growth in the Chinese market where sales rose 21.4 per cent to ¥70.76bn.
By contrast in Japan tough competition in a stagnant beauty market translated into a sales drop of 2 per cent to ¥366.51bn.