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 4: Organisation and Structure

Roger Farrell


OVERVIEW The organisational structure of Japanese subsidiaries has a predominate focus on an international marketing, sales and distribution network to facilitate exports and imports. There is also a strong bias towards intrafirm trade, investment and technology flows in the corporate boundary between parents and overseas subsidiaries and affiliates. In theory, a firm is likely to invest in the creation of foreign affiliates if the ‘transaction costs’ of finding and monitoring the performance of a foreign partner or agent are too high – or the firm fears the loss of proprietary technology through licensing. If these costs are low, the firm may prefer to export from the home country (Hennart and Park, 1993). In the case of Japanese FDI, there has also been a management and cultural preference to maintain ownership and control by the parent company, based on expatriate management of affiliates. In the international business operations of Japanese firms there is often a close relationship between the overseas affiliates of parents which have ties in Japan – which has led to sales and procurement being tied to customary linkages and traditional suppliers and customers. In the manufacturing sector, this organisational pattern has led to the domestic supply chains between automotive assemblers and parts and component producers being replicated in other economies, such as in the United States, Europe and East Asia. Typically, the international subsidiaries of Japanese services firms, such as business services, communications and transport services, construction, real estate and financial services, have also been...

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