3.2.1 The Relaxation o f M IT Vs FD1 Restrictions
The first point to recall is that, during the immediate post-war period, Japanese FDI was strictly regulated by MITI (see Chapter (2)). These regulations appeared to be conducive to the successful nurturing of Japan’s infant industries. Indeed, the pace of Japan’s post-war industrial development was such that, by the early 1960’s, Japan’s larger corporations had attained a strong technological position, from which they were able to compete in the global market, with their rivals from the USA and Europe.
However, despite Japanese corporations appearing internationally competitive, the combination of domestic demand constraints, supply factors (see Sections (3.3) and (3.4)) and the restrictive FDI regulations appeared to inhibit their future development. Corporate Japan’s foreign rivals, for instance, were major transnational corporations, who could use their global facilities to access both new and mature markets, and also to take advantage of lower production costs. Consequently, Japan’s large corporate firms felt required to compete on equal terms and so they began to pressurise MITI into relaxing the FDI restrictions (Mason, 1994). In this respect, MITI became increasingly enthusiastic about developing Japan’s own “national champions” in the global economy (Piore and Sabel, 1984). Eventually, in 1971, MITI revised the FDI laws and all outward FDI proposals were automatically validated without financial limit. The abolition of exchange controls in 1980, which liberalised international capital flows,
completed the de-regulation programme1.
3.2.2 Japan’s Global Actors
The relaxation of the FDI restrictions has allowed Japan’s large corporations to pursue their own strategic interests at the global level. We have already noted, in Chapter (1), the significant increase in Japanese FDI, particularly since the late 1970’s: a trend which has have enabled Japan’s large transnationals to emerge as dominant players in the global economy. In this respect, Japan is now the home of 17 of the world’s top 100 transnational corporations who, collectively, own approximately 16% of the global economy’s foreign assets. Only the corporate sector of the USA owns a greater proportion of foreign assets (see UNCTAD, 2000). Table (3.1) provides some recent details about these 17 transnational corporations, ranking them in terms of their ownership of foreign assets.
The machinery sector accounts for over 60% of all Japanese FDI flows (OECD, 1999). As result, over two-thirds of the transnationals listed in Table (3.1) operate in the machinery sector; the others are Japan’s large trading companies (see Table (3.1)). The largest Japanese transnational is Toyota, which is ranked as the sixth largest transnational in the world, and the third largest in the automobile sector. However, the degree of transnationality is greater in companies such as Honda, Sony and Bridgestone, which own a greater proportion of their assets outside Japan (see Table (3.1)). 1
1 In this respect, it is interesting to note the degree of influence that Corporate Japan could exert upon MITI’s economic policy-making. Since the Second World War, Japanese corporations and MITI had developed a close working relationship. These relations extended to the common practice of retired MITI officials being offered prominent positions within large Japanese corporations. It is conceivable that such channels allowed Corporate Japan to influence economic policy (Johnson, 1982). Certainly, these lines o f communication were very effective in Corporate
In terms of global market shares, Japan’s transnationals have made significant advances since the late 1960’s. For instance, in 1966, Toyota was the only Japanese automobile manufacturer amongst the world’s top ten producers, with a marginal 2.4% share of the global car market. By the mid-1990’s, the company had almost quadrupled its global market share to 9.4% and was joined in the top ten, by Nissan (5.4%), Honda (4.0%) and Mitsubishi (3.3%). In the case of Honda, its global market share has increased 20 fold since 1966 and it is now also the world’s leading manufacturer of motorcycles. Furthermore, in the production of rubber tyres, Bridgestone is second only to Michelin. In electronics, Sony is now the world’s largest company in audio and video equipment, while Fujitsu is in the top three of the world’s mainframe computer manufacturers (Toyo Keizai, 2001).
3.2.3 Global Sourcing
The increase in Japanese FDI has contributed to the significant rise in the proportion of Japan’s total corporate output produced offshore and in overseas employment. This is reflected in Japan’s overseas production ratios, which have been rising at both the sector and aggregate manufacturing level (see Table (3.2))2. Since 1985, there has been a four-fold increase in Japan’s aggregate overseas production ratio and, between 1985 and 1995, the growth rate in Japan’s overseas production was twice that of its main competitors: the USA or Germany (see Table (3.2)). Furthermore, in 1997, outsourcing also accounted for 31.1% of the total corporate output of Japan’s transnational corporations - a 350% increase
2 It is wise to treat these statistics with caution, given that the data is collated from annual surveys of Japanese transnationals. These surveys are vulnerable to variance in both coverage and response rates (Ramstetter, 1996). This qualification aside and, in the absence of any alternative data, Table (3.2) still provides us with some useful indicators.
on the 1985 level. In addition, between 1992 and 1996, the number of employees, employed by Japanese transnationals doubled to 2.2 million - over 17% of Japan’s domestic labour force (see Table (3.2)).
Over the same period, at the industry level, Japanese overseas production also more than doubled in Chemicals, Industrial Machinery, Iron and Steel and Precision Tools. However, the highest overseas production ratios are recorded in the machinery sector: Electrical Machinery and Electrical Goods (19.7%), and Transport Equipment (24.9%). Within these industry sub-sectors, the level of overseas production is even higher. In the Japanese electronics industry, for instance, the Electronic Industries Association of Japan (EIAJ, 1997, p. 6)
claims, “offshore production, by Japanese affiliates, has now surpassed the
domestic totals fo r almost every consumer electronics product". The EIAJ have attributed this trend as being the prime reason for the decline of Japan’s domestic consumer electronics industry. In this respect, the EIAJ note that although Corporate Japanese output - total production at home and abroad - in the sector is currently at an historical high, domestic production runs are now at less than half the levels they were during their peak in the mid-1980’s (EIAJ, 1997)3.
The data in Table (3.2) illustrates the growing extent to which Japan’s large firms have become involved in their own transnational production networks. These networks primarily involve production linkages both within and between the
3 The case of the Japanese television industry provides an illustrative example. In 1978, Japan's overseas affiliates produced 3.2 million television sets, almost a third of Japan’s total corporate production. By 1988, the ratio was 30:30. In 1996, Japanese overseas affiliates produced a record 40.3 million colour television sets, over 6 times the domestic figure. In 1996, Japan's of domestic output of television sets was a mere 40% of its 1983 level. Japanese production of video tape recorders (VTRs) follow a similar pattern (EIAJ, 1997).
economies of Asia, North America and Europe. The linkages are created through
the co-ordinated operations of Japanese subsidiaries, keiretsu group companies
and other non-affiliated suppliers. According to MITI (2001), 48.7% of all Japanese transnational’s trade-flows are now intra-firm; a statistic, which, to some extent, reflects the importance of these networks in Corporate Japan’s international operations. The Japanese automobile industry provides the most prominent example of these transnational networks and, as such, they are considered in further detail, in Chapters (4) and (5).
In summary, since the early 1970’s, Japan’s large corporations have emerged to compete on the global scale. They have enhanced their global market shares, through producing reputable branded goods and have become increasing involved in transnational production networks. We will now consider the fundamental factors that lie behind the growth of these transnational activities.