Japan’s Outward FDI in Globalization

1
Japans Outward FDI in Globalization
25-26 April, 2007

• Daisuke Hiratsuka
• Director General of Development Studies Center
• Institute of Developing Economies, JETRO
• 81-43-299-9676, Fax. [phone]
• daisuke_hiratsuka_at_ide.go.jp

2
Contents

• What does determine outward FDI?
• New Asian economic landscape
• Distribution of Japans outward FDI
• Japans outward FDI inside Asia
• Evolution of global presence by Japanese firms
• International expansion by Japanese SMEs
• Perspective of Japanese outward FDI in further
  economic integration

3
1. What does determine outward FDI?
Country A
Country B A new frontier
Presence of transport cost
Increase of factor prices In country B
Increase of profits
Agglomeration Force (FDI in country A)
Dispersion Force (FDI in country B)
Fall of transport cost
Increase of profits
Increase of factor prices In country A
Decrease of profits
1. Agglomeration and dispersion forces are
sources of FDI.
4
1. What does determine outward FDI?
The differences in factor prices makes the
flying geese pattern in terms of FDI.
development
R

D
H
i
g
h
-
t
e
c
h
g
o
o
d
s
C
a
p
i
t
a
l
g
o
o
d
s
D
u
r
a
b
l
e
c
o
n
s
u
m
e
r
g
o
o
d
s
L
a
b
o
r
-
i
n
t
e
n
s
i
v
e
g
o
o
d
s
E
m
e
r
g
i
n
i
n
g
c
o
u
n
t
r
i
e
s
Cambodia
A
S
E
A
N
-
4
Laos
N
I
E
s
Myanmar
K
o
r
e
a
Vietnam
T
h
a
i
l
a
n
d
T
a
i
w
a
n
J
a
p
a
n
H
o
n
g
K
o
n
g
China
M
a
l
a
y
s
i
a
S
i
n
g
a
p
o
r
e
I
n
d
o
n
e
s
i
a
India
5
1. What does determine outward FDI?
Industry have agglomerated in many Asian
countries, and they have been linked to produce a
good most of suppliers are Japanese affiliates.
USA
Mexico
DISK HGST HEAD HGST SUSPENSIONHTI
HEAD GDL
SPNDLE MOTOR NIDEC, NMB BASE
WEARNS CARRIAGE FUJIKURA, SANEI FLEX CABLE
NOK PIVOT NMB SEAL KOKOKU VCM SMT,TDK TOP
COVER NOK, NHK PCBA SSCI HGAUTC HASUTC
Japan
China
COVER NHK DISKHOYA SCREW KATAYAMA SEAL
KOKOKU, TOKAI RAMP DAICHI TOP CLAMP BPI,
SOODE LATCH NOK PLATECASE BRIDGESTONE LABEL
SANSAI FILTER SSRETEK PCBA SSCI SUSPENSION NHK
PCBAGBM,SSCI CARRIAGETDK HGA HSPC BASE
BPI HEAD HGST SUSPENSIONNHK
Taiwan
Thailand
TOP CLAMP GML
Malaysia
Hong Kong
FILTER CAP GML
BASE KENSEISHA PIVOT NSK SPACERKENSEISHA VCMS
HINETSU BASEASAHI CARDSCI, CELESTICA TOP CLAMP
SCL, CELESTICA, SOODE DISK KOMAG
Philippines
DAMPING PLATE IMEAS COIL SUPPORT TOTOKU PCBA
IONIX
Singapore
COVER KURODA, CHEUNGWOH SCREWTIORMAC
, SPURWAY PIVOT NSK PC ADP
JST DISC HOYA
Indonesia
W.SUSPENSION SUMITOMO VCM SHINETSU PCBA
SOLECTION
6
1. What does determine outward FDI?

• Production process is becoming sequential stages
  of production, and instead of final products,
  parts and components within the same industry are
  traded.
• Assuming the two country case, a good across
  border four times at the exported from the
  country A imported into the country B exported
  from the country B after processing , and
  imported back to the country A.
• In the actual sequential production, one good
  crosses borders many times to produce a final
  good.
• It implies that the reduction of trade costs,
  such as trade liberalization and facilitation
  measures, would develop the sequential
  production, increasing FDI flows.

7
2. New Asian economic landscape trade pattern
inside Asia has changed from inter-industry to
intra-industry that has traded parts and
components.
Note Asia contains the ASEAN five countries
(Indonesia, Malaysia, the Philippines, Singapore,
and Thailand), China, Japan, Korea, and Hong
Kong. Imports of China are available after 1998.
Source IDE-JETRO/RIETI
8
2. New Asian economic landscape Import relation
between Japan and ASEAN
9
2. New Asian economic landscape Import relation
between China and ASEAN
10
2. New Asian economic landscape overseas market
is increasing share in sales and profits.
Table 1 Share of sales for TSE-listed firms (by
region)
Notes 1. Above chart shows results of firms
listed on the Tokyo Stock Exchange (TSE), whose
fiscal year ends between December to March, and
who release sales and operating profits by
region. (Firms in banking and insurance
industries are excluded.) Note 2 Year-on-year
growth rates for sales/operating profits are
calculated to include the same group of firms (to
allow for comparison). Note 3 Europe includes
Africa and the Middle East. Others includes
answers wih multiple regions combined (e.g.
Europe and the US). Source prepared by JETRO
based on Toyo Keizai Shimposhas Kigyo Zaimu
Karte 2007
11
2. New Asian economic landscape overseas market
is increasing share in sales and profits.
Table 2 Share of profits for TSE-listed firms (by
region)
Notes 1. Above chart shows results of firms
listed on the Tokyo Stock Exchange (TSE), whose
fiscal year ends between December to March, and
who release sales and operating profits by
region. (Firms in banking and insurance
industries are excluded.) Note 2 Year-on-year
growth rates for sales/operating profits are
calculated to include the same group of firms (to
allow for comparison). Note 3 Europe includes
Africa and the Middle East. Others includes
answers wih multiple regions combined (e.g.
Europe and the US). Source prepared by JETRO
based on Toyo Keizai Shimposhas Kigyo Zaimu
Karte 2007
12
3. Distribution of Japans outward FDI
Figure 6. Japan's Outward FDI (based on reports
and notifications) by Country/Region (Million US)
1st boom 1985-92
After the crisis
2nd boom 1993-97
Inactive up to 1985
Note Firms with capital more than 100 million
yen are to report to the Ministry of Finance,
Japan. Source Original data from the Ministry
of Finance of Japan, and converted into from
Japanese yen to the US dollar by JETRO.
13
3. Distribution of Japans outward FDI
Fiigure 7. Share of Japan's Outward FDI (based on
reports and notifications) by Country/Region ()
Note Firms with capital more than 100 million
yen are to report to the Ministry of Finance,
Japan. Source Original data from the Ministry
of Finance of Japan, and converted into from
Japanese yen to the US dollar by JETRO.
14
4. Japans outward FDI inside Asia
Fiigure 8. Japan's Outward FDI (based on reports
and notifications) inside Asia by Country/Region
(Million US)
After the Plaza Accord
Before the crisis
After the crisis
Before the Plaza Accord
Note Firms with capital more than 100 million
yen are to report to the Ministry of Finance,
Japan. Source Original data from the Ministry
of Finance of Japan, and converted into from
Japanese yen to the US dollar by JETRO.
15
4. Japans outward FDI inside Asia
Fiigure 9. Share of Japan's Outward FDI (based on
reports and notifications) inside Asia by
Country/Region ()
Note Firms with capital more than 100 million
yen are to report to the Ministry of Finance,
Japan. Source Original data from the Ministry
of Finance of Japan, and converted into from
Japanese yen to the US dollar by JETRO.
16
4. Japans outward FDI inside Asia
Fiigure 10. Share of Japan's Outward FDI (based
on reports and notifications) inside ASEAN 6
(Million US)
After the crisis
Before the crisis
After the Plaza Accord
Before the Plaza Accord
Note Firms with capital more than 100 million
yen are to report to the Ministry of Finance,
Japan. Source Original data from the Ministry
of Finance of Japan, and converted into from
Japanese yen to the US dollar by JETRO.
17
4. Japans outward FDI inside Asia the rise of
China
Figure 11 Japan's outward FDI inside Asia (based
on balance of payments basis, net flow, US
million)
The rise of China the entry in the WTO
ASEAN Was the major host
Sources Prepared by JETRO from Ministry of
Finance Balance of Payments Statistics and Bank
of Japan foreign exchange rates
18
4. Japans outward FDI inside Asia Resurgence of
ASEAN, the so called China olus one
Figure 12 Japan's outward FDI inside Asia (based
on balance of payments basis, net flow, US
million)
The rise of Thailand under the China plus one
Sources Prepared by JETRO from Ministry of
Finance Balance of Payments Statistics and Bank
of Japan foreign exchange rates
19
6. International expansion by Japanese SMEs

• In the mid 1980s, SMEs who afforded enough had in
  human resources and capitals, went to overseas,
  in particular to ASEAN, exporting back goods to
  Japan.
• SMEs have suffered from the decreasing demands.
  As a breakthrough in severe business
  environments, Japanese SMEs have advanced to
  operate in Asia, in order to participate in the
  production networks.
• After the Chinas entry in WTO in 2001, a large
  number of SMEs have advanced to China, seeking
  market.
• SMEs have at least two overseas production sites
  one in ASEAN and another in China.

20
6. Perspective in further economic integrationn

• Japan will increase investment in Japan the
  so-called return to Japan.
• Production and distribution networks have been
  self-organizing, meaning that Japan will continue
  outward FDI at high level.
• But, the presence of Japans FDI in Asia will be
  down, because most of Japans FDIs are the
  expansion of existing facilities, meanwhile FDIs
  by other Asia are new investments.
• Japan will increase FDIs in the new frontiers
  such as Vietnam, India, and other emerging
  economies.