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 2: Patterns of Japanese Investment

Roger Farrell


OVERVIEW Japan emerged as an important investor in the world economy, with significant outflows of foreign direct investment, indirect portfolio investment and official development aid to other economies, particularly in the Asia-Pacific region. Overseas direct investment helped develop marketing, production, services and technology linkages with foreign markets while retaining management control by parent companies in Japan. As the Japanese economy has grown and restructured, so the direction and purpose of overseas investment has changed. Early Japanese FDI reflected the industrial restructuring of the Japanese economy and its need for raw materials and energy. A wave of investment in simple manufacturing occurred in nearby Asian economies, often behind trade barriers to ensure market access. From the mid-1980s, a more diverse range of Japanese firms founded overseas affiliates as yen appreciation encouraged the relocation of manufacturing and the acquisition of foreign assets and companies. In the electronics and automotive industries, complex supply chains have emerged in East Asia in response to the modularisation of production to create cost efficiencies. The automotive sector and associated industries such as chemicals, rubber and steel set up extensive production clusters in North America to offset trade friction and ensure this large market would remain open to both exports from Japan and locally assembled vehicles. Japanese services industries have internationalised at a slower rate than the manufacturing sector, although trading companies were early leaders in wholesale and retail investment to facilitate the expansion of Japanese trade. In leading services...

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