Japanese Investment and Technology Transfer Report of a Workshop (1992) / Chapter Skim
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2. Assessing the Evidence- Japanese Investment and Technology Transfer
2. Assessing the Evidence- Japanese Investment and Technology Transfer
Pages 5-34
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From page 5... ...
9. indirect investment itself can be separated into acquisition of an existing company, the purchase of a minority equity stake, "green field" investment to build a new subsidiary from scratch, and new funding for the expansion or modernization of a subsidiary that comes from the home country rather than from the retained earnings of the subsidiary itself.
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From page 6... ...
Between organizations, transfer of management practices can occur as a result of business relationships, labor mobility or competitive pressure. In the case of Japanese FDI in the U.S., there are several potential "technology transfer routes" that need to be considered.
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From page 7... ...
Academic research on this aspect of Japanese investment has not been as extensive as research on other dimensions, such as supplier-manufacturer relationships in the automobile industry. In the absence of concrete data, perceptions will be based on anecdotal evidence.
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According to Commerce Department data, in 1989 U.S. subsidiaries paid their Japanese parents over ten times what they received in licensing fees and royalties which indicates that Japanese firms transfer much more technology to their U.S.
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From page 9... ...
Technology transfer within a single firm is usually simpler than transfer between firms, and there may be no obvious incentive for formal licensing agreements in such cases. However, MNC's do have a motive for recording licensing transactions between units in different countries because of national disparities in corporate tax rates, foreign exchange regulations, or other aspects of the policy environment.
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From page 10... ...
Even though the rate of corporate taxation is not particularly high in the United States, Japanese companies only pay Japanese taxes on subsidiary income that is remitted as dividends, and do not pay taxes on licensing income.~9 Therefore, manipulating the transfer prices used in transactions between the parent and U.S. subsidiary, including licensing fees, may be an effective strategy to minimize the corporate tax bill.20 Besides technology transfer that can be measured in licensing statistics, there are other facets of the operations of Japanese MNCs that have an impact on the technological level of their U.S.
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From page 11... ...
Indications are that Japanese companies are continuing to increase their investment in U.S. R&D activity.22 The question of whether R&D spending by the American subsidiaries of Japanese companies is a good proxy yardstick for inward technology transfer must also be raised.
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Until more recent data become available, we will not be able to assess the impact of the large acquisitions Japanese firms made after 1987. Some acquisition targets were "laggard" American firms.24 The TABLE 5 Value-Added (in $ thousands perworker)
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From page 13... ...
Although there is nothing in those statistics that paints a particularly disturbing or encouraging picture of the impact of Japanese FDI on technology transfer, some experts warn of the danger of "flying blind," and argue that a small commitment of resources to data collection and dissemination would significantly reduce the risk of policy mistakes based on incomplete information.28 25Edward Graham, op.
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From page 14... ...
in recent years.32 These acquisitions may indicate that there are a number of Japanese companies, particularly in electronics, that are using direct investment to acquire technology as well as to diversify and further penetrate the U.S. market.33 Those who argue that "technology gathering" is not an inherent part of Japanese corporate strategy point out that the $320 million in minority investments in high technology start-ups constituted only about 2% of the $16 billion total for Japanese FDI during 1989.
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From page 15... ...
NA AG Associates Canon Sales 30% Anacomp Magnetic Disc Division Hitachi Metals 100% C-Cube Microsystems Kubota 38.1% Centerpoint Computers Kyocera NA Cooper Lasersonics Ion Lasers Division Lexel Laserline 100% Domain Technology Kubota $66 million Exabyte Kubota $7.5 million Excel Microelectronics Rohm/Exar $5.7 million EICO Iwatanilnternational NA Gould Nippon Mining 100% Komag Kobe Steel 20% Lam Research Sumitomo Metals 4.5% Literal Kawasaki Steel 21% Micro Mask Hoya $26 million Mips Kubota $36.6 million Maxoptics Kubota 25% Maxtor Kubota $17 million Mountain Computer Nakamichi 100% Materials Research Sony MRC 100% Mosaic Sumitomo Metals 10% Next Canon $100 million National Advanced Systems Hitachi 100% Novellus Systems Seki & Co. $1.9 million Poqet Computer Fujitsu 55% Precision Image Graphtec 100% Rasna Kubota 15% Siltec Mitsubishi Metals 100% Silicon Graphics NKK $35 million Sprague Semiconductor Sanken 100% Telemar Resources Chikyu Kagaku NA Telmos Rohm $1.5 million Varian Special Metals Division Tosoh 100% Verbatim Mitsubishi Chemical 100% Via Technologies Fujitsu Microelectronics 24% Vitelic Oki Electric NA Source: San Jose Mercury News, compiled from American Electronics Association Japan Office and Ullmer Bros.
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From page 16... ...
It is likely that the nature of Japan's technological edge in manufacturing is such that Japanese firms must transfer technology in order for their offshore facilities to enjoy this advantage.36 However, presentations at the workshop indicate that technology transfer has been much less extensive in the consumer electronics industry than has been the case in the automobile industry, with the semiconductor industry perhaps falling somewhere in between. Each of these industries has received a substantial amount of Japanese investment.
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From page 17... ...
Industrial products and components are the sectors presently leading the Japanese electronics industry technologically and in the market. 37Michael Borrus, from his presentation on "Industry Specific Experience," at the Workshop on Japanese Investment and Technology Transfer: An Exploration of Its Impact.
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From page 18... ...
A1though growth in the overall consumer market has slowed, the high-end segment, represented by camcorders and video "watchmen," is showing strong growth. If these products are combined conceptually with highdemand, industrial-use products that have similar manufacturing and marketing characteristics such as lap-top computers, electronic notebooks, and fax machines, one can identify a new market segment that is almost completely dominated by Japanese companies.38 These products drive component technology development because success in the market depends upon technical sophistication as well as on high-volume, low-cost manufacturing.
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From page 19... ...
Subsequent to the first wave of investment in color television production, a second wave of consumer electronics FDI in the United States occurred in the l980s in response to exchange rate shifts and further trade pressures. For example, Japanese companies began cordless phone production in the U.S.
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4 840 Color TVs, video disks, car audio, and stereo speakers Sharp Corp. 1 830 Colorants, PCs, and microwave ovens Alps 2 825 Car audio, computer keyboards, and disk drives Oki Electric Industry Co.
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in their American labs, motivated by a desire to ensure that Japanese companies can meet whatever lIDTV standard eventually emerges from the Federal Communications Commission.4~ It is difficult to make precise statements about the levels of domestic content and vertical integration, but the available information on this aspect of Japanese FDI does not paint an encouraging picture either. A 1983 study by Arthur D
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From page 23... ...
In terms of work force training and management practices, the U.S. subsidiaries of Japanese consumer electronics companies appear to be at least a product generation behind Japanese factories.43 43Ibid.
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plants operated by Japanese firms, but can be found in abundance in Japan.44 Increased domestic procurement, training and the manufacture of more sophisticated products by Japanese electronics companies in the United States has taken place only as a result of U.S. trade pressure.
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From page 25... ...
Front-end FDI was initially aimed at the United States, but there is increasing investment in Europe as Japanese firms seek to boost local content and establish a European image in anticipation of the unified European market. There are several exceptions to the general rule that Japanese FDI in semiconductor manufacturing has been largely motivated by political pressure.
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One concern that U.S.-owned chipmakers have about Japanese FDI in the semiconductor manufacturing equipment industry, as opposed to FDI in semiconductor manufacturing itself, relates to "technology security." Japanese equipment suppliers tend to move offshore with their customers, to which they are often linked by financial and other ties. A number of Japanese companies have acquired U.S.
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From page 28... ...
equipment industry, which may result in long-term problems for domestic chipmakers. Japanese investments in design and software, not the subject of this discussion, appear to be motivated by the desire to strengthen Japanese industry in these areas.
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From page 29... ...
The price and quality of components have a significant impact on the competitiveness of the end product. Management of the procurement process and supplier relationships is a crucial issue for auto companies.53 Management of relations with automobile components suppliers can embody "soft technology." The question is whether standard Japanese practices in this area confer a competitive advantage on Japanese firms, and whether or not these practices are being transferred to the United States by the growing operations of Japanese auto companies here, the so-called "transplants." A recent survey of U.S., Japanese and transplant operations conducted by Michael Cusumano and Akira Takeishi at MIT's Sloan School of Management addresses these questions.
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From page 30... ...
The "problem-solving" approach common in Japan can be contrasted with the "bargaining" orientation of American firms.S6 In general, the supplier management practices of the transplants fall between the U.S. and Japanese averages, showing more similarities to the practices of Japanese companies operating in Japan.
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From page 31... ...
Selection Criteria Past contact, Price & Quality Price (Emphasis) Affiliation Role in Development Inquiries at 30 months & selection at 26 months Inquiries at 33 months & selection at 24 months Inquiries at 27 months & selection at 23 months 70% Blackbox 64% Blackbox 96% Blackbox 30% Decail-controlled 23% Detail-controlled Source: Michael Cusumano The authors concluded that the low defect rate achieved by the transplants was partly due to their utilization of parts sourced in Japan and from Japanese-owned suppliers that followed the manufacturers to the United States.
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Japanese suppliers make lower margins and see no conflict between lower prices and higher quality. Another interesting finding of the survey is that the supplier management techniques used by Japanese companies and their U.S.
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From page 33... ...
* = Difference significant at 0.05 Source: Michael Cusumano Overall, the evidence from the automobile industry is encouraging because it indicates that U.S.-based suppliers and the Big Three are capable of change in the direction of superior Japanese practices.57 Some Japanese automakers are making well-publicized efforts to build long-term relationships with U.S.
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From page 34... ...
Technology transfer from Japan to the United States may be indispensable for the transplants to enjoy the same manufacturing edge that Japanese companies do at home.60 Whether or not "soft technology" is transferred from Japanese to U.S.-owned organizations and the impact of this technology transfer on the competitiveness of the domestic industry may depend to a great extent on whether U.S. companies managers, unions, and suppliers are flexible enough to change traditional relationships.
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