Japan’s Outward FDI in Globalization 25 -26 April, 2007 Daisuke Hiratsuka Director General of Development Studies Center Institute of Developing Economies, JETRO 81 -43 -299 -9676, Fax. 81 -43 -299 -9763 daisuke_hiratsuka@ide. go. jp
Contents 1. 2. 3. 4. 5. What does determine outward FDI? New Asian economic landscape Distribution of Japan’s outward FDI inside Asia Evolution of global presence by Japanese firms 6. International expansion by Japanese SMEs 7. Perspective of Japanese outward FDI in further economic integration 2
1. What does determine outward FDI? Country B: A new frontier Country A Presence of transport cost Increase of factor prices In country B Agglomeration Force (FDI in country A) Increase of profits Dispersion Force (FDI in country B) Fall of transport cost Increase of profits Increase of factor prices In country A Decrease of profits 1. Agglomeration and dispersion forces are sources of FDI. 3
1. What does determine outward FDI? The differences in factor prices makes the “flying geese pattern” in terms of FDI. development R&D High-tech goods Capital goods Durable consumer goods Labor-intensive goods Emergining countries Cambodia ASEAN-4 Laos NIEs Myanmar Vietnam China India Thailand Malaysia Korea Taiwan Hong Kong Japan Singapore Indonesia 4
1. What does determine outward FDI? Industry have agglomerated in many Asian countries, and they have been linked to produce a good: most of suppliers are Japanese affiliates. SPNDLE MOTOR: NIDEC, NMB BASE: WEARNS CARRIAGE: FUJIKURA, SANEI FLEX CABLE: NOK PIVOT: NMB SEAL: KOKOKU VCM: SMT, TDK TOP COVER: NOK, NHK PCBA: SSCI HGA: UTC HAS: UTC Thailand Malaysia BASE: KENSEISHA PIVOT: NSK SPACER: KENSEISHA VCM: SHINETSU BASE: ASAHI CARD: SCI, CELESTICA TOP CLAMP: SCL, CELESTICA, SOODE DISK: KOMAG COVER: KURODA, CHEUNGWOH SCREW: TIORMAC, SPURWAY PIVOT: NSK PC ADP: JST DISC: HOYA DISK: HGST HEAD: HGST SUSPENSION: HTI China Mexico HEAD: GDL Japan COVER: NHK DISK: HOYA SCREW: KATAYAMA SEAL: KOKOKU, TOKAI RAMP: DAICHI TOP CLAMP: BPI, SOODE Taiwan LATCH: NOK PLATECASE: BRIDGESTONE TOP CLAMP: GML LABEL: SANSAI FILTER: SSRETEK PCBA: SSCI SUSPENSION: NHK PCBA: GBM, SSCI CARRIAGE: TDK HGA: HSPC BASE: BPI HEAD: HGST SUSPENSION: NHK Hong Kong FILTER CAP: GML Singapore USA Philippines DAMPING PLATE: IMEAS COIL SUPPORT: TOTOKU PCBA: IONIX Indonesia W. SUSPENSION: SUMITOMO VCM: SHINETSU PCBA: SOLECTION 5
1. What does determine outward FDI? • Production process is becoming sequential stages of production, and instead of final products, parts and components within the same industry are traded. • Assuming the two country case, a good across border four times: at the exported from the country A; imported into the country B; exported from the country B after processing , and imported back to the country A. • In the actual sequential production, one good crosses borders many times to produce a final good. • It implies that the reduction of trade costs, such as trade liberalization and facilitation measures, would develop the sequential production, increasing FDI flows. 6
2. New Asian economic landscape: trade pattern inside Asia has changed from inter-industry to intra-industry that has traded parts and components. Note: Asia contains the ASEAN five countries (Indonesia, Malaysia, the Philippines, Singapore, and Thailand), China, Japan, Korea, and Hong Kong. Imports of China are available after 1998. Source: IDE-JETRO/RIETI 7
2. New Asian economic landscape: Import relation between Japan and ASEAN 8
2. New Asian economic landscape: Import relation between China and ASEAN 9
2. New Asian economic landscape: overseas market is increasing share in sales and profits. Table 1 Share of sales for TSE-listed firms (by region) Notes: 1. Above chart shows results of firms listed on the Tokyo Stock Exchange (TSE), whose fiscal year ends between December to March, and who release sales and operating profits by region. (Firms in banking and insurance industries are excluded. ) Note 2: Year-on-year growth rates for sales/operating profits are calculated to include the same group of firms (to allow for comparison). Note 3: “Europe” includes Africa and the Middle East. “Others” includes answers wih multiple regions combined (e. g. “Europe and the US”). Source: prepared by JETRO based on Toyo Keizai Shimposha’s “Kigyo Zaimu Karte 2007” 10
2. New Asian economic landscape: overseas market is increasing share in sales and profits. Table 2 Share of profits for TSE-listed firms (by region) Notes: 1. Above chart shows results of firms listed on the Tokyo Stock Exchange (TSE), whose fiscal year ends between December to March, and who release sales and operating profits by region. (Firms in banking and insurance industries are excluded. ) Note 2: Year-on-year growth rates for sales/operating profits are calculated to include the same group of firms (to allow for comparison). Note 3: “Europe” includes Africa and the Middle East. “Others” includes answers wih multiple regions combined (e. g. “Europe and the US”). Source: prepared by JETRO based on Toyo Keizai Shimposha’s “Kigyo Zaimu Karte 2007” 11
3. Distribution of Japan’s outward FDI Figure 6. Japan's Outward FDI (based on reports and notifications) by Country/Region (Million US$) 1 st boom 1985 -92 2 nd boom 1993 -97 After the crisis Inactive up to 1985 Note: Firms with capital more than 100 million yen are to report to the Ministry of Finance, Japan. Source: Original data from the Ministry of Finance of Japan, and converted into from Japanese yen to the US dollar by JETRO. 12
3. Distribution of Japan’s outward FDI Fiigure 7. Share of Japan's Outward FDI (based on reports and notifications) by Country/Region (%) Note: Firms with capital more than 100 million yen are to report to the Ministry of Finance, Japan. Source: Original data from the Ministry of Finance of Japan, and converted into from Japanese yen to the US dollar by JETRO. 13
4. Japan’s outward FDI inside Asia Fiigure 8. Japan's Outward FDI (based on reports and notifications) inside Asia by Country/Region (Million US$) After the Plaza Accord Before the crisis After the crisis Before the Plaza Accord Note: Firms with capital more than 100 million yen are to report to the Ministry of Finance, Japan. Source: Original data from the Ministry of Finance of Japan, and converted into from Japanese yen to the US dollar by JETRO. 14
4. Japan’s outward FDI inside Asia Fiigure 9. Share of Japan's Outward FDI (based on reports and notifications) inside Asia by Country/Region (%) Note: Firms with capital more than 100 million yen are to report to the Ministry of Finance, Japan. Source: Original data from the Ministry of Finance of Japan, and converted into from Japanese yen to the US dollar by JETRO. 15
4. Japan’s outward FDI inside Asia Fiigure 10. Share of Japan's Outward FDI (based on reports and notifications) inside ASEAN 6 (Million US$) After the Plaza Accord Before the crisis After the crisis Before the Plaza Accord Note: Firms with capital more than 100 million yen are to report to the Ministry of Finance, Japan. Source: Original data from the Ministry of Finance of Japan, and converted into from Japanese yen to the US dollar by JETRO. 16
4. Japan’s outward FDI inside Asia: the rise of China Figure 11 Japan's outward FDI inside Asia (based on balance of payments basis, net flow, US$ million) ASEAN Was the major host The rise of China: the entry in the WTO Sources: Prepared by JETRO from Ministry of Finance Balance of Payments Statistics and Bank of Japan foreign exchange rates 17
4. Japan’s outward FDI inside Asia: Resurgence of ASEAN, the so called “China olus one” Figure 12 Japan's outward FDI inside Asia (based on balance of payments basis, net flow, US$ million) The rise of Thailand under the China plus one Sources: Prepared by JETRO from Ministry of Finance Balance of Payments Statistics and Bank of Japan foreign exchange rates 18
6. International expansion by Japanese SMEs 1. In the mid 1980 s, SMEs who afforded enough had in human resources and capitals, went to overseas, in particular to ASEAN, exporting back goods to Japan. 2. SMEs have suffered from the decreasing demands. As a breakthrough in severe business environments, Japanese SMEs have advanced to operate in Asia, in order to participate in the production networks. 3. After the China’s entry in WTO in 2001, a large number of SMEs have advanced to China, seeking market. 4. SMEs have at least two overseas production sites; one in ASEAN and another in China. 19
6. Perspective in further economic integrationn 1. Japan will increase investment in Japan; the so -called “return to Japan. ” 2. Production and distribution networks have been self-organizing, meaning that Japan will continue outward FDI at high level. 3. But, the presence of Japan’s FDI in Asia will be down, because most of Japan’s FDIs are the expansion of existing facilities, meanwhile FDIs by other Asia are new investments. 4. Japan will increase FDIs in the new frontiers such as Vietnam, India, and other emerging economies. 20
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