Japanese Investment in the World Economy
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Japanese Investment in the World Economy

A Study of Strategic Themes in the Internationalisation of Japanese Industry

Roger Farrell

This book examines Japanese Foreign Direct Investment (FDI) in the world economy over more than five decades. It provides a unique focus on the internationalisation experience of selected industries, such as forestry, textiles, electronics, motor vehicles, steel and services as well as case studies of individual firms. Japanese Investment in the World Economy is distinctive in that it examines overseas investment by firms in the primary, manufacturing and services sectors over the period in which the Japanese economy became the second largest in the world.
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Chapter 1: Japanese Investment in the World Economy

Roger Farrell


INTRODUCTION Japanese foreign direct investment flows into the world economy have shaped the way that Japan has interacted with other economies and the internationalisation of its business sector. Insignificant in the 1950s, these outflows began to gradually increase over subsequent decades, before expanding rapidly from the 1980s. Firms in Japan, the world’s second largest economy since the late 1960s, established overseas sales, production, research and distribution networks across the world. These networks of tens of thousands of overseas affiliates facilitated Japan’s trade with the world and established production bases to supply local and international markets. Since the 1950s, the pattern of investment has changed with the structure of the Japanese economy, away from a focus on the export of light manufactures to heavy industrial goods, complex machinery and equipment, consumer durables and more advanced industries such as electronics and motor vehicles in later decades. Firms in less competitive industries, such as textiles, relocated to East Asia to lower production costs. The sharp appreciation of the yen from the mid-1980s was a turning point, leading many firms to shift manufacturing bases to ASEAN and China to maintain export competitiveness. The strength of the yen both increased the intensity of import competition and increased the purchasing power of firms seeking to relocate production or to acquire foreign rivals – sometimes in competition with domestic rivals – as occurred in the sequential takeover of Columbia Pictures by Sony Corporation in 1989 and Matsushita Electric’s purchase of MCA the following year. In a...

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