Japanese Direct Foreign Investment

163 Pages·1979·12.424 MB·English

by  Sueo Sekiguchi (auth.)

]apanese
Direct
Foreign
Investment
Japanese
Direct
Foreign
Investment
by SUEO SEKIGUCHI
An Atlantic Institute research volume
© Atlantic Institute for International Affairs 1979
Softcoverreprint ofthe hardcover Ist edition 1979978-0-333-27039-4
All rights reserved. No part of this publication
may be reproduced or transmitted, in any form
or by any means, without permission
First published in the United States 01 America 1979
First published in the United Kingdom 1979
Published by
THE MACMILLAN PRESS LTD
London and Basingstoke
Associated companies in Delhi
Dublin Hong Kong Johannesburg Lagos
Melboume New York Singapore Tokyo
British Library Cataloguing in Publication Data
Sekiguchi, Sueo
Japanese direct foreign investment
I. Investments, Japanese 2. Capital investments
I. Title
332.6'7352 HG4538
ISBN 978-1-349-81408-4 ISBN 978-1-349-81406-0 (eBook)
DOI 10.1007/978-1-349-81406-0
This book is sold subject
to the standard conditions
01 the Net Book Agreement
Foreword
In early 1976, the japan Economic Research Center and the Atlantic
Institute for International Affairs jointly undertook a major 20·month
study of japanese direct foreign investment, the results of which are
presented in this volume. The purpose of this study was to analyze the
nature and the performance of that investment specifically in terms of
three major problems currently facing the world economy: the
increasing number of international disputes over direct investment in
the development of natural resources; the increasing demands on the
part of many less-developed countries (LDCs) for a strengthening of
the regulations on manufacturing investment in the LDCs; and the
disputes among developed countries over the control of industries by
multinational corporations, the impact of technological development
in host countries, the burden to host countries of adjustment in
employment, and conflicts with respect to international trade.
Accordingly, the study undertook three main tasks: to investigate
japanese foreign investment in resource development in the light of
efforts to stabilize primary commodity markets; to examine manu
facturing investment in developing countries and discuss its economic
impact on host countries; and to shed light on japanese direct
investment in Europe, a continent whose national economies ate in a
competitive rather than complementary relationship with japan.
It is not commonly realized that japanese direct foreign investment
has only a short history. It is only since the late 1960s thata substantial
stream of japanese foreign direct investment began to develop,
v
vi Foreword
expanding even more in the early 1970s, partly as a result of rapidly
rising production costs in japan in recent years. One of the major
merits of this book is to shed light on this relatively new phenomenon.
Investment in the development of natural resources abroad
constitutes an important part of japanese foreign investment. This is
closely related to the fact that japanese dependency on foreign sources
for basic commodities is the highest among the world's industrialized
countries. As this study shows, japan's large involvement abroad in
this field of trade guarantees her an active role in stabilizing
international commodity trade at the global level. At the same time, the
major part of japanese manufacturing investment is in developing
countries, particularly in Asia and in Latin America. While not
neglecting the problems involved in the sometimes difficult relation
ship between host country and foreign investors, the study convinc
ingly argues that japanese direct foreign investment contributes to an
increase in real income in host countries both through the creation of
income from local capital and through wages for labor that feed into
these economies.
It is also interesting to note that j apanese direct investment in
developed countries is a fairly small percentage of her total direct
investment, and of this share the predominant portion is concentrated
in commerce, banking and insurance activities, with only minor
investment in manufacturing industries. It is argued, however, that
this relationship will gradually shift in favor of manufacturing
investment, since manufactured exports coming directly from japan
will increasingly face difficulties in sectors where other industrialized
countries are already suffering a fall in employment. All in all, the
study argues that japanese direct foreign investment will continue to
increase, partly because the cost of both labor and fixed capital in
japan will rise relative to international levels, but mostly (and this is
one of the key theses of the book) because japanese firms will continue
to accumulate managerial capabilities which will inevitably expand
the operational horizons of japanese business.
In pFesenting this volume, we wish to express our deep appreciation
to the institutions and people who made this important undertaking
possible. The research in Europe, including travel by the author
between Tokyo and Paris, was made possible by the generosity of the
Sumitomo Fund for Policy Research Studies of the japan Society,
particularly Executive Director David MacEachron, and Director for
Education & Communications Peter Grilli. The research costs in
Tokyo were borne by the japan Economic Research Center.
The project which has resulted in this timely contribution represents
the first major collaboration between the japan Economic Research
Center and the Atlantic Institute for International Affairs. It will, we
Foreword vii
hope, be only the first of many joint efforts to explore the relationship
of Japan with the countries of Western Europe and North America,
and the J apanese response to problems w hich Japan shares in common
with the other industrialized countries of the world.
Hisao Kanamori Martin J. Hillenbrand
President Director General
The Japan Economic The Atlantic Institute
Research Center for International Affairs
June 1978
Preface and Acknowledgments
japan's industrialization after World War 11 and its subsequent export
drive in manufactured goods began later than in Western countries but
developed at a faster pace. By the early 1970s, japanese direct foreign
investment was following a similar pattern of development. Its growth
had begun in the late 1960s, but accelerated increasingly in the early
1970s.
As japanese foreign trade forms a significantly large part of world
trade, japan must now pay increasing attention to the impact of its
investment policies on foreign countries, in terms not only of trade but
also of demand management. In addition, these policies must be
considered in terms of the increasing interdependence of national
economies that international investment produces.
This study is based on that recognition. It aims to shed new light on
japanese direct foreign investment in the hope of making a helpful
contribution to the international debate on the subject. The author has
attempted to evaluate j apanese direct foreign investment not only from
the japanese but also from the host countries' points of view. Needless
to say, theoretical models also provide an important means of
evaluating the performance of japanese direct investment.
The structure of the present study requires a brief explanation.
Chapter I briefly surveys some theoretical hypotheses about direct
foreign investment and clarifies this study's standpoint. It also tries to
provide an overview of both japanese overseas investment and foreign
direct investment in japan.
ix
x Preface and Acknowledgments
In Chapters 2, 3, and 4, japanese direct foreign investment is
investigated in three controversial areas. First the analysis focuses on
investment in primary commodities (Chapter 2). In this area disputes
between investing and host countries have intensified in recent years,
as have conflicts between exporting and importing countries on the
viability of programs to stabilize commodity prices. Chapter 2 tries to
evaluate japanese direct investment and official policies for stabilizing
commodity prices. As it is difficult to cover all commodities in one
chapter, this study deals only with metals.
The second controversial area is investment in manufacturing
industries in less developed countries. It has been pointed out that
industrialization through direct foreign investment has had various
undesirable side effects in host developing countries. Nevertheless, it is
extremely difficult for a developing country to reduce urban
unemployment and promote industriaIization without such invest
ment. Chapter 3 examines japanese direct foreign investment in
manufacturing industries in less developed countries from two main
viewpoints:
a) the impact on host countries-on real income (the welfare effect),
on industrialization and technology transfer, on income distribu
tion and industrial organization and, finally, through the trans
mission of business fluctuations in the investing country;
b) the impact on investing countries-on domestic employment and
on adjustment in declining industries. Three cases are discussed
Thailand, Republic of Korea (South Korea), and Brazil.
The third area examined is japanese direct investment in advanced
industrial countries. Chapter 4 deals with japanese direct investment
in Western Europe as a case of inter-industrial-country direct
investment. It may seem that direct investment among industrial
countries is relatively trouble-free in comparison with the above two
cases. On the other hand, trade conflicts among these countries are
increasing because of the difficulty of adjustment in many industrial
sectors and geographical regions. j apanese direct investment in
Western Europe has so far been very limited, partly because of the
relatively high degree of homogeneity in the two economies. Even so,
and to so me extent because of this, it is of interest to investigate
japanese direct investment in Western Europe. The main focus in this
section is the relationship between international trade, j apanese direct
investment and the social effects of ]apanese subsidiaries in Western
Europe.
Finally, Chapter 5 summarizes and evaluates the main findings of
the preced~ng chapters. It also looks at the activities of ]apanese
general trading companies and their possible evolution into large
Preface and Acknowledgments xi
multinational corporations-a structure still relatively uncommon in
japan. Cultural differences are not limited to the existence of general
trading companies but are also found in business management.
Therefore, the procedures of japanese business management are also
compared with the practice in host countries.
This research project was originally planned in 1975 on the
initiative of Professor Pierre Uri of the Atlantic Institute for Inter
national Affairs in Paris. Ambassador john W. Tuthill, then Director
General of the Institute, devoted much effort to promoting the project.
On the japanese side, Professor Hisao Kanamori, President of the
japan Economic Research Center, alsoencouraged theresearch for this
study. Mr. Munemichi Inoue, from Marubeni Co. and Professor of
International Economics at Saitama University, assisted on Chapter 3.
Another collaborator, Mr. Tadahisa Ooka (from Sumitomo Chemical
Co.), who assisted on Chapter 4, spent nearly two years in Paris at the
Atlantic Institute, working on this project and related maUers. I would
like to express my thanks to all these people.
In january 1977, Ambassador Martin J. Hillenbrand took over the
position of Director General of the Atlantic Institute and immediately
gave much kind help in this study. I extend grateful acknowledgment
to Dr. Hillenbrand and to his colleagues Mr. Fabio Basagni and Dr.
Gregory Flynn, at the Institute, for their warm cooperation
throughout the final phase of the project.
Benjamin J. Cohen, Professor of International Economic Relations
at the Fletcher School of Law and Diplomacy, read through earlier
drafts of all chapters and made valuable comments. Professor Christian
Sautter of the Institut National de la Statistique et des Etudes
Economiques and Mr. jacques Candon, Director of the French
Industrial Development Agency in Tokyo, also gave valuable advice.
Individuals at Sony, Matsushita and Takiron kindly provided us with
valuable information. In Tokyo, Messrs. Masaya Miyoshi and Kiichi
Kageyama made helpful comments on earlier drafts. All these
courtesies are deeply appreciated.
Also I would like to acknowledge the valuable help of Miss Kumiko
Mizutani throughout the period of the study and of Miss Akiko Kitano
who made earlier drafts of the English translation.
Sueo Sekiguchi