United States Direct Investment in Japan: Trends and Prospects

See, for example, Abegglen James Stalk George Jr. , Kaisha: The Japanese Corporation (New York, NY: Basic Books, 1985), Chapter 9.

This evidence is presented and analyzed in a small but growing body of literature which emphasizes the role of Japanese FDI impediments. On the historical importance of such impediments, see Mason Mark , American Multinationals and Japan: The Political Economy of Japanese Capital Controls, 1899–1980 (Cambridge, MA: Council on East Asian Studies, Harvard University, 1992). For discussion of the more recent past, see, in particular, Dennis Encarnation, Rivals Beyond Trade: America versus Japan in Global Competition (Ithaca, NY: Cornell University Press, 1992), pp. 83–96: And Lawrence Robert Z. , “Why Is There So Little Foreign Direct Investment in Japan?” NBER Working Paper, 1992.

U.S. Department of Commerce, Survey of Current Business (August 1991). Position estimates calculated on historical cost basis. Revised Commerce data now rank Japan seventh, behind Bermuda as well, as host to accumulated United Slates FDI in 1990. Preliminary Commerce data for 1991 place Japan sixth using this same measure. See Scholl Russell B. Mataloni Raymond J. Jr. Bezirganian Steve D. , “The International Investment Position of the United States in 1991,” Survey of Current Business, June, 1992, p. 55.

Survey of Current Business, various issues. Indeed, as measured by the Bank of Japan, annual FDI inflows during the 1980s from the United States (and from all external sources, for that matter) peaked in 1988, after which such inflows substantially declined. Bank of Japan, Balance of Payments Monthly, various issues.

Gekkan boeki to sangyo [Trade and Industry Monthly] (November 1991), p. 27.

Prominent examples include Abegglen and Stalk, op. cit., and, more recently, Morgan James C. Morgan J. Jeffrey , Cracking the Japanese Market: Strategies for Success in the New Global Economy (New York, NY: Free Press, 1991). For more examples of this burgeoning “success literature,” see reference #11.

The British Rank Xerox is a subsidiary of the American parent Xerox Corporation, so that the Japanese firm Fuji Xerox also can be considered an American success story.

Tsusho sangyo sho [MITI], Gaishikei kigyo no doko: Dai 24 kai [Trends in Foreign-Affiliated Companies: No. 24] (Tokyo: 1991); and data as cited in Nihon kaihatsu ginko [Industrial Bank of Japan], “Tai nichi chokusetsu toshi no bunseki” [An Analysis of Foreign Direct Investment in Japan] in Chosa dai 151 go [Investigative Report No. 151] (July 1991), pp. 20–23.

Tsusho sangyo sho, Gaishikei kigyo, and Okurasho [MOF], Hojin kigyo tokei yoran [Overview of Corporate Statistics], as cited in Nihon kaihatsu ginko [Industrial Bank of Japan], “Tai nichi chokusetsu toshi no bunseki” [An Analysis of Foreign Direct Investment in Japan], Chosa dai 151 go [Investigative Report No. 151] (July 1991), p. 45.

Mason , op. cit., Chapters 4 and 5. Also, see Encarnation Dennis Mason Mark , “Neither MITI nor America: The Political Economy of Capital Liberalization in Japan,” International Organization, 44/1 (Winter 1990): 25–54.

Examples of such criticism, explicitly or implicitly stated, can be found in Abegglen Stalk , op. cit.; Christopher Robert , Second to None: American Companies in Japan (Tokyo: Tuttle, 1986); Huddleston Jackson Jr. , Gaijin Kaisha: Running a Foreign Business in Japan (Armonk, NY: M.E. Sharpe, Inc., 1990); Kang T.W. , Gaishi: The Foreign Company in Japan (New York, NY: Basic Books, 1990); and McKinsey & Company, Japan Business: Obstacles and Opportunities (Tokyo: President, Inc., 1983).

On the comparatively low overall levels of European FDI in Japan, see, for example, HEC Eurasia Institute, Comp., Japan and Europe: Overcoming the Imbalances (Jouyen-Josas, France: HEC Eurasia Institute, 1991), pp. 27–37; on specific examples of Japanese investment barriers encountered by European companies, see, for example, the discussion of Albrecht Rothacher, former representative of the EC Delegation in Tokyo, in European Policy Unit, European University Institute, Europe and Japan: Cooperation and Conflict, Florence, unpublished report, 1992.

Mason , op. cit.

This procedure more recently has been modified to an ex post notification requirement. For a list of excepted industries still subject to specific government FDI regulations, see below.

Organization for Economic Cooperation and Development (OECD), Controls and Impediments Affecting Inward Direct Investment in OECD Member Countries (Paris: OECD, 1987), pp. 47–49. The three other industries, generally controlled by other nations as well, are: Broadcasting, air transportation, and marine transportation.

Foreign Exchange and Foreign Trade Control Law, as revised based on changes approved by the Diet in April, 1991 which went into effect in January 1992. See Tsusho sangyo sho, “Tainichi chokusetsu toshi sokushin saku ni tsuite” [Concerning Policies to Promote Foreign Direct Investment in Japan], Tokyo, unpublished report, January 1992. Prior to these changes, the government maintained the right through foreign exchange legislation to block any FDI proposal judged capable of having “adverse implications” for Japanese competitors or for other reasons.

For further discussion of these and related official FDI barriers, see, for example, American Chamber of Commerce in Japan [ACCJ], Trade and Investment in Japan: The Current Environment (Tokyo: ACCJ, 1991), Chapter 2.

On the other hand, foreign companies often have enjoyed an advantage over local firms in attracting educated female workers in the Japanese market. See, for example, the discussion in Huddleston, op. cit., pp. 42–43.

A growing number of foreign subsidiaries, however, have taken advantage of liberalized acquisition policies in the 1980s to buy out their erstwhile Japanese distributors. Although the effects of these buyouts are as yet difficult to quantify, presumably they will somewhat ease distribution problems. On the general increase in American direct investment in the Japanese distribution sector, see, in particular, Encarnation, op. cit., pp. 93, 96.

For further discussion of these and other private-sector FDI impediments, see, for example, American Chamber of Commerce in Japan, op. cit., Chapter 2.

On the success theme, see, for example, “Guess Who's Selling Barbies in Japan Now?” Business Week, December 9, 1991, pp. 72–76.

The law, enacted in 1974, states that local store owners must give their consent before a retail outlet with floor space larger than roughly 5,400 square feet can be opened in their locale. See Transportation and Distribution (June 1991). On its face, of course, this law represented a public sector impediment to Toys ‘R’ Us. Yet the measure grants to local business the authority to decide whether to invoke sanctions, and thus represents an impediment ultimately originating in the private sector.

On the Toys ‘R’ Us entry, see, among other articles: “Japanese Stores Unite to Fend Off Toys ‘R’ Us,” The New York Times, August 28, 1990, p. 2: “You Can't Remove Cultural Barriers,” Transportation & Distribution (June 1991), p. 43ff; “Guess Who's Selling Barbies in Japan Now?” Business Week, December 9, 1991, pp. 72–76; “Toys ‘R’ Us Opens Doors in Japan,” The New York Times, December 21, 1991: And “Toy Joy,” The Economist, January 4, 1992, p. 62.

The following account is drawn largely from: Encarnation, op. cit.; Kester W. Carl , Japanese Takeovers: The Global Contest for Corporate Control (Boston, MA: Harvard Business School Press, 1991); Tsusho sangyo sho sangyo seisaku kyoku, ed. Bei o to koko ga chigau nihon no M&A [Here's How Japanese M&A Differs from American and European M&A] (Tokyo: Dayamondo, 1991); and various articles in Business Week, The Financial Times, The Japan Economic Journal, The New York Times, and Time.

Gekkan boeki to sangyo [Trade and Industry Monthly] (November 1991), pp. 26–31.

The new enabling legislation, called the “Law on Extraordinary Measures for the Facilitation of Imports and Foreign Direct Investment in Japan” [Yunyu no sokushin oyobi tainai toshi jigyo no enkatsuka ni kansuru rinji sochi ho], provides the bureaucracy necessary authority to carry out many of the specific measures outlined above. The Diet approved this legislation in March 1992. The author gratefully acknowledges the assistance of Yanase Tadao of MITI's International Trade Division in obtaining detailed information about these new government measures.