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 20: Services and Investment

Roger Farrell


OVERVIEW The services sector is a significant and growing part of the world economy and accounts for the dominant share of employment and GDP in industrialised countries, including Japan – where it represented almost 70 per cent of production and employment, accounting for sales of over ¥300 trillion and employment of 34 million people in 2005. The sector covers a large number of important industries such as banking, insurance, real estate, retailing, transportation and telecommunications, travel and tourism, transportation, construction, insurance, patent royalties and business services. Japanese trade in international services has increased through advances in ICT technologies and globalisation, but typically requires both foreign direct investment and people flows. In general, the provision of services occurs through four modes: these include the cross-border supply of services from another country, as with outsourced telephone services (mode 1); consumption abroad, as in tourism or education (mode 2); developing a commercial presence with FDI (mode 3); and the movement of services providers to the foreign market, as with consulting (WTO, 2006). A market presence can be established through non-equity arrangements such as franchises or partnerships and these approaches are common for hotel services, advertising, education, accounting and legal services. But for other services, these arrangements appear inadequate. For services industries such as banking and finance, wholesale and retail trade and business services, a commercial presence through FDI is preferred. Direct investment allows investors to protect firm-specific knowledge, human capital or intangible assets and retain control over the management of foreign operations...

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