The Impact of Outsourcing on the Japanese Economy
Chapter 1: Introduction
THE ISSUES International fragmentation of production – the cross-border splitting of the production process within vertically integrated manufacturing industries – has been a key facet of economic globalization over the past few decades. This relocation of production processes has been the main driver of the rapidly growing trade in parts and components (‘fragmentation trade’) between developed and developing countries in recent years.1 International vertical specialization implies two important forms of structural adjustment in the manufacturing processes of developed countries. First, it brings about a notable change in the patterns of the manufacturing trade by increasing fragmentation trade. Second, it has implications for both the level and composition of domestic employment. These are important and policy relevant issues. Over the past two decades international fragmentation of production has been reshaping the structure and performance of Japanese manufacturing, providing an excellent laboratory to investigate these issues. Despite a proliferation of research on this topic, the few existing Japanese studies have focused narrowly on the growth of international specialization without placing this in the context of the related and ongoing process of structural transformation. In addition, the findings and policy implications reported in the existing literature have been mostly derived from studies of the US manufacturing experience. However, the impact of globalization processes such as production fragmentation on industry can be quite heterogeneous across countries, depending on factors such as the specific features of industrial and labour market structures. This important point has been largely ignored in existing Japanese studies that have not addressed some...