Inward foreign direct investment by MNEs in Japan up to 1980

Topics: Meiji period, Investment, International economics Pages: 9 (3535 words) Published: January 28, 2015
BEM 3030 International Business History Assignment 2 !

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An Explanation and Review of inward foreign direct investment by MNEs in Japan up to 1980 (Qn.13)!

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Student ID: 610059574 !
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University of Exeter !
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Prepared for: !
Professor David Boughey !

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University of Exeter

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BEM 3030 International Business History Assignment 2 !

Introduction !

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Japan’s restrictive stance towards inward foreign direct investment (IFDI) has been particularly prominent from the origins of 12th century Japan through the Tokugawa shogunate and Meiji era, till late 1960s when liberalisation gradually took place. Much debate has centred around the development of IFDI in Japan, which saw various stakeholders each taking a different stance towards liberalisation of the Japanese market. Many foreign multinational enterprises (MNEs) took particular interest in the Japanese market as they saw huge potential in the rapidly growing economy then. This essay will explore the reasons why MNEs wanted to enter Japan and the corresponding development of IFDI in Japan (in particular the period between 1868 to 1980), by understanding the perspectives and relationships of the stakeholders involved. The discussion will also examine a few prominent foreign MNEs; the various means they employed in an attempt to penetrate the Japanese market, and if they eventually succeeded or failed. !

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Understanding MNE’s attraction to Japan: Reasons, Challenges, and Case Studies!

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Japan was not particularly an easy market to enter, largely due to a staunchly nationalist government which was sceptical of IFDI, patent cultural differences and language barriers, isolated geographic position, and its rather unique job market policies (Paprzycki and Fukao, 2005). Yet, Japan was increasingly attractive to foreign MNEs, as they saw longterm growth potential of the Japanese market. Japan was also a major industrial nation with a huge internal market in post-war years. In addition, highly skilled labour was in abundance and the country enjoyed a high degree of political stability (Yoshino, 1970, pp. 347). All these factors made direct investment in Japan a highly tempting proposition for MNEs seeking to establish a presence in new territories. !

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MNEs who tried to enter the Japanese markets, however, faced tremendous obstacles. This is largely due to the intense scrutiny by the restrictive Japanese government and the overwhelming resistance from Japanese businesses which had strong influence over governmental policies. Therefore, the success of MNE’s entrance into the Japanese market entailed perseverance and assiduity (Buckley and Mirza et al., 1987, pp. 241-258). !

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In 1897, Western Electric, an American electric engineering and manufacturing company, had recognised the strategic importance of Japan as a platform for its business operations. However, Japan had laws restricting IFDI at that time and there were concerns of the Japanese government’s favouritism towards local firms. Nonetheless, Harry Thayer, who was then managing the international department at Western Electric, insisted on pursuing the Japanese market. He began making plans to collaborate with a local Japanese firm Oki Shoki as a mean of entering the market. His plans however did not succeed mainly due to disagreements over the accounting of profits. A consensus was never made as Oki Shoki was singularly apprehensive about working with a foreign firm. Eventually, Thayer managed to form an agreement with its Japanese sales agent, Iwadare Kunihiko, which saw the establishment of Nippon Electric Limited Partnership, with an agreement that it will be reorganised into a joint stock company upon the treaty revision. Nippon Electric company (NEC) was formed on 1898 after the treaty revision, making it one of the pioneering joint ventures between a foreign MNE and a...

References: Buckley, P. J., Mirza, H. and Sparkes, J. R. 1987. Direct foreign investment in japan as a means of
market entry: The case of European firms 1
Mason, M. 1992. Foreign direct investment in Japan: Lessons from business history. The
International Executive, 34 (1), pp
Mason, M. 1992. American multinationals and Japan. Cambridge, Mass.: Council on East Asian
Studies, Harvard University.
Mason, M. 1987. Foreign Direct Investment and Japanese Economic Development, 1899-1931.
Paprzycki, R. and Fukao, K. 2005. The extent and history of foreign direct investment in Japan. HiStat Discussion Paper, (84).
Yoshino, M. Y. 1970. Japan as Host to the International Corporation in C. Kindleberger (ed.), The
International Corporation – A Symposium, Cambridge, Mass., The MIT Press.
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