A Study of Strategic Themes in the Internationalisation of Japanese Industry
Chapter 6: Financing Investment
INTRODUCTION The ﬁnancial organisation and funding of Japanese direct investment has evolved from the 1950s when foreign exchange restrictions eﬀectively limited overseas investment, to more sophisticated investment structures in later years. The ﬁnancing of Japanese foreign direct investment has been through a varying blend of equity capital from the parent company; reinvestment from earnings of the subsidiary; borrowings by either the parent or subsidiary in Japan or the host economy; or other ﬁnancial instruments such as corporate bond issues on international markets. Since the 1970s, equity capital has been the predominant form of funding for overseas subsidiaries, while reinvestment has been comparatively unimportant – possibly due to the comparatively low proﬁtability of Japanese FDI for much of the post-war period. Loans to parents or subsidiary companies were a signiﬁcant source of ﬁnance for FDI until the end of the 1990s but have been negligible since then. Equity contributions from parents to subsidiaries could also be funded by borrowing in Japan, but this is not evident in the available statistics. In the early phase of Japanese modernisation, overseas investment occurred typically as an adjunct to international trade and trading companies were major investors (Wilkins, 1990). As Japan became the world’s second largest economy by the 1970s, Japanese banks and other ﬁnancial institutions established overseas representative oﬃces and branches to facilitate the global operations of their domestic clients (Tamaki, 1990). This international ﬁnancial network was able to lend directly to overseas Japanese aﬃliates. A wide range of factors,...
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