International Friction and Cooperation in High-Technology Development and Trade Papers and Proceedings (1997) / Chapter Skim
Currently Skimming:
Asymmetries in National Patterns of Foreign Direct Investment: Consequences for Trade and Technology Development
Asymmetries in National Patterns of Foreign Direct Investment: Consequences for Trade and Technology Development
Pages 278-303
The Chapter Skim interface presents what we've algorithmically identified as the most significant single chunk of text within every page in the chapter.
Select key terms on the right to highlight them within pages of the chapter.
From page 278... ...
The Comparative Political Economy of Multinational Corporations (Reich et al., forthcoming)
|
From page 279... ...
And in contrast to the public warnings of the imminent "hollowing out" of the Japanese economy as the high value of the yen drives Japanese firms off shore, recent and forthcoming studies indicate quite clearly that the economic structure of Japan's most strategically important industries remain firmly intact. Although assembly facilities have moved off shore as part of an ongoing process for the last two decades, the heart of Japan's manufacturing capability and its industrial basis remains firmly entrenched in its traditional domestic centers.2 In June of 1995, Samsung, a Korean firm, announced that it had "beaten" both its American and Japanese rivals "to the punch" by being the first to develop a fully functional "next-generation" 256-k semiconductor DRAM chip.
|
From page 280... ...
The findings of that study provide strong evidence of at least two distinct patterns of behavior among the world's leading multinational corporations in regard to how they link their trade and overseas investment policies and a plenitude of anecdotal evidence that such strategic choices by the world's largest firms have an impact on their capacity to design and manufacture the next generation of technology, whether a billion-dollar fabrication plant that will be redundant within six years, or a new software program whose life expectancy will be considerably shorter. Prevalent View of Investment Patterns: Product Cycle Theory Traditional patterns of behavior have often meant policies designed to substitute foreign trade for foreign direct investment (FDI)
|
From page 281... ...
Initially, the aspects of the manufacturing process that are relocated to foreign plants are the most simple assembly jobs, with more sophisticated production processes that require intensive capitalization remaining within, broadly speaking, the advanced industrialized world. As a result, multinationals heavily import intermediate goods early in the foreign direct investment cycle, because they have more developed business relations, established standards and certification procedures, and secure sources in the home market.
|
From page 282... ...
production grew from 164,500 to 600,000 vehicles a rate of increase in Toyota's U.S. sourcing that was somewhat faster than that anticipated by product cycle theory (Toyota Motor Corporation, 1994~.
|
From page 283... ...
Third, much of product cycle theory work (although by no means all, as Dunning's work attests) has either a theoretical or empirical focus which assumes the investing firm is based in the advanced industrialized world and the recipient in the third world, with remarkably little consideration given to the differing factors that might apply when investment remains within the Triad or, more broadly, the Organization of Economic Cooperation and Development (OECD)
|
From page 284... ...
If this assumption is unjustified, the theory cannot possibly provide a description of actual investment behavior.5 These structural impediments may constitute the largest and most effective barriers to the effective functioning of product cycle theory. Among the problems I have identified, such barriers may also have the greatest practical policy implication for my argument that sanctuary markets exist which generate artificial profits for investment.
|
From page 285... ...
Many companies in Japan are hostile to unsolicited takeovers, and the private sector in Japan instituted a system of "stable shareholders" as part of the liberalization of investment rules by the Japanese government. According to this view, the Ministry of International Trade and Industry (MITI)
|
From page 286... ...
DIA in Japan has grown over the prior ten years when liberalization of the rules for FDI in Japan suggests that it should have decreased. According to product cycle theory, with liberalization, U.S.
|
From page 287... ...
Another source indicates that, of 584 mergers and acquisitions involving Japanese firms in 1992, 387 involved Japanese firms acquiring other Japanese firms, and 165 were Japanese firms acquiring foreign firms. In only 32 cases did foreign firms acquire Japanese firms Bergsten and Noland 1993:81.
|
From page 288... ...
Honda and Mazda each had approximately 2,500 sales outlets in 1990. Indirect investments by Mazda (currently 25 percent owned by Ford)
|
From page 289... ...
Because of these measures, U.S.-based multinationals investing in Japan are, in effect, often unable to compete directly with their Japanese counterparts in areas where the Japanese firms are least competitive. Furthermore, Japanese government proscriptions against foreign investments that threaten national security or public order, that affect existing producers, or that disrupt the national economy are vague enough to justify government intervention under many different circumstances (U.S.
|
From page 290... ...
, government measures that are transparent often remain, nevertheless, discriminatory. The USTR reported that the Japanese government retains the authority to restrict investment in specified sectors, including aircraft, space development, agriculture, fishing and forestry, oil and gas, mining, leather and leather product manufacturing, nuclear power, weapons and ordnance manufacturing, and tobacco (Office of the United States Trade Representative, 1993:16~.
|
From page 291... ...
A 1992 Keidanren report indicated that these individual industry regulations "are actually more responsible for restricting foreign investment than the Foreign Exchange Control Law" (Committee on Foreign Affiliated Corporations, 1992:8~. Thus "opaque restriction of entry by policies and administrative guidance based on specific industry laws virtually discriminates [against]
|
From page 292... ...
In 1990, Japan's level of inward FDI per capita was much lower than other OECD countries such as Germany and the United Kingdom. Japanese figures demonstrate an asymmetry in the comparable position of foreign firms in the United States and foreign firms in Japan.
|
From page 293... ...
Combined, the relatively recent presence of much of the world's FDI, the complexity and uncertain origin of manufactured inputs, the increasingly nuanced patterns of national affiliation among producers and their suppliers as strategic alliances weave companies together in new and unusual configurations, and the continued importance of government and corporate sector inhibitions on foreign investment all make the utility of product cycle theory inherently problematic. It remains difficult to confirm by analyzing the sourcing behavior of foreign affiliates.
|
From page 294... ...
Product cycle theory would expect convergence toward the type of investment behavior outlined by the theory. In the product cycle formulation, investment and trade are interchangeable, with investment replacing trade over time, substituting for it.
|
From page 295... ...
And Japanese firms have been the most common practitioners of this approach. The key additional component to that model, the element that distinguishes it from product cycle theory, is the use of intrafirm trade as the mechanism for a trade-creating strategy.
|
From page 296... ...
Nevertheless, a major bifurcation in the preferred patterns of direct investment behavior among the world's leading firms is becoming readily evident not the converging pattern that product cycle theory would predict. The preference in corporate behavior appears strongly correlated with the country of origin of the foreign direct investor.
|
From page 297... ...
Anglo-American firms have often encountered a different pattern of regulation when investing abroad. They have often been forced by host governments to invest in fully integrated production facilities, exchange market access for patents, or have often been denied any investment access at all.
|
From page 298... ...
Second, constraints on the ability of foreign firms to invest in another country afford the firms that do compete in that country a sanctuary home market. Although competition between domestic firms may exist, it is, nonetheless, limited.
|
From page 299... ...
In the case of large firms, the terms of the deal often included provisions that limited the partners in terms of the markets in which they could sell their new technologies. Confidential interviews reveal once again that, American firms, for example, have repeatedly found themselves prohibited from competing in the Japanese markets in the case of the new technologies that they jointly developed with Japanese partners.
|
From page 300... ...
The potential flaw in this approach is that it is a shrinking world, and American firms often face competition from the very same firms in these third markets that benefit from the privileges of sanctuary markets. Armed with artificial profits that subsidize sales and finance new technological development, American firms face the short- and long-term prospect of being out-competed in their efforts to attract new customers.
|
From page 301... ...
The Report of the Ad-Hoc Committee on Foreign Direct Investment in Japan, Keidanren Committee on International Industrial Cooperation. Tokyo: Committee on Foreign Affiliated Corporations.
|
From page 302... ...
1983-1991a. Foreign Direct Investment in the United States.
|
From page 303... ...
Encarnation, eds., Does Ownership Matter? Japanese Multinationals in Europe.
|
Key Terms
This material may be derived from roughly machine-read images, and so is provided only to facilitate research.
More
information on Chapter Skim is available.