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

  • New Horizons in International Business series

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 21: Expansion and Withdrawal of Financial Services

Roger Farrell

Extract

21. Expansion and withdrawal of financial services OVERVIEW The finance and insurance sector in Japan refers to banking and related financial businesses, the securities industry and the insurance industry. Japanese banks and other financial institutions have traditionally established subsidiaries overseas to meet the international business requirements of their domestic clients, such as trade finance and the provision of credit and other financial services to the overseas subsidiaries of Japanese firms. In general, direct investment by the financial sector refers to transactions related to equity capital and permanent debt (loan capital representing a permanent interest) used to found overseas operations including branches, local subsidiaries and representative offices. Deposits and loans of banks and other financial institutions are classified as portfolio investment – although loans from banks in Japan to their subsidiaries abroad would be classified as FDI even if these funds were on-lent. The choice of entry mode and location is also influenced by host country regulations on foreign investment in the financial sector (Duce, 2003). Traditionally, Japanese banks have played an important role in the financing of FDI by firms in other industries, as well as through the banking industry’s own expansion into international financial markets. In contrast, securities companies and insurance companies have been more active in the management of Japanese portfolio investment, for example in the acquisition of long-term debt securities such as US treasury bonds. Over the post-war period, Japanese banks were a key source of investment credit both domestically and in the financing...

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