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Japan ’ s 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. 81-43-299-9763 [email protected] Contents. What does determine outward FDI?

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Japan s outward fdi in globalization l.jpg

Japan’s 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. 81-43-299-9763

[email protected]


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Contents

  • What does determine outward FDI?

  • New Asian economic landscape

  • Distribution of Japan’s outward FDI

  • Japan’s 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


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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.


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1. What does determine outward FDI?

The differences in factor prices makes the “flying geese pattern” in terms of FDI. development

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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

SUSPENSION:HTI

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

HGA:UTC

HAS:UTC

China

Japan

PCBA:GBM,SSCI

CARRIAGE:TDK

HGA: HSPC

BASE: BPI

HEAD: HGST

SUSPENSION:NHK

COVER: NHK

DISK:HOYA

SCREW: KATAYAMA

SEAL: KOKOKU, TOKAI

RAMP: DAICHI

TOP CLAMP: BPI, SOODE

LATCH: NOK

PLATECASE: BRIDGESTONE

LABEL: SANSAI

FILTER: SSRETEK

PCBA: SSCI

SUSPENSION: NHK

Taiwan

Thailand

TOP CLAMP: GML

Malaysia

Hong Kong

FILTER CAP: GML

BASE: KENSEISHA

PIVOT: NSK

SPACER:KENSEISHA

VCM:SHINETSU

BASE:ASAHI

CARD:SCI, CELESTICA

TOP CLAMP: SCL,

CELESTICA, SOODE

DISK: KOMAG

Philippines

DAMPING PLATE: IMEAS

COIL SUPPORT: TOTOKU

PCBA: IONIX

Singapore

COVER: KURODA,

CHEUNGWOH

SCREW:TIORMAC,

SPURWAY

PIVOT: NSK

PC ADP: JST

DISC: HOYA

Indonesia

W.SUSPENSION: SUMITOMO

VCM: SHINETSU

PCBA: SOLECTION


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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.


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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




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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 Shimposha’s “Kigyo Zaimu Karte 2007”


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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 Shimposha’s “Kigyo Zaimu Karte 2007”


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3. Distribution of Japan’s outward FDI increasing share in sales and profits.

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.


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3. Distribution of Japan’s outward FDI increasing share in sales and profits.

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.


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4. Japan’s outward FDI inside Asia increasing share in sales and profits.

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.


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4. Japan’s outward FDI inside Asia increasing share in sales and profits.

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.


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4. Japan’s outward FDI inside Asia increasing share in sales and profits.

Fiigure 10. Share of Japan's Outward FDI (based on reports and notifications) inside ASEAN 6 (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.


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4. Japan’s outward FDI inside Asia: the rise of China increasing share in sales and profits.

Figure 11 Japan's outward FDI inside Asia (based on balance of payments basis, net flow, US$ million)

ASEAN

Was the major host

The rise of China: the entry in the WTO

Sources: Prepared by JETRO from Ministry of Finance Balance of Payments Statistics and Bank of Japan foreign exchange rates


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4. Japan’s 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


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6. International expansion by Japanese SMEs the so called “China olus one”

  • 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 China’s 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.


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6. Perspective in further economic integrationn the so called “China olus one”

  • 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 Japan’s FDI in Asia will be down, because most of Japan’s 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.


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