Changing Competitiveness of Japanese Firms and Role of Japan's FDI

Abstract

The origin of Japanese firms’ international competitiveness is in the system of minimising ‘the sum of production costs and transaction costs’ in the procurements of ‘specialty’ parts. Japan’s location advantages are indispensable factors for Japanese firms to achieve the cost minimisation. Furthermore, existence of global demand for ‘specialty ’ products has strongly supported the ownership advantages of Japanese automobile industry. However, recent ‘ICT revolution’ has caused accelerated ‘commoditisation’ of ‘specialty’ products, especially, in ICT and electronics industries. This ‘commoditisation’ undermined Japanese firms’ competitiveness in ICT and electronics industries. Japanese firms in the industries have to concentrate more on development of new products, instead of effective production. The Japanese electronics and ICT firms are facing several dilemmas, which need to be resolved. I. The Background and the Issue After the low growth age of Japanese economy (so-called ‘Japan’s lost decade’ with about 1 per cent growth or less per year) in the 1990s and beginning of 21 century, it seems that finally Japanese economy has turned to an upward direction of 2.5 per cent growth or more per year in recent years. However, is it true that Japanese firms have actually strengthened and recovered their competitiveness in some major industries, especially in ICT (information communication technology) industries? In this article, I focus on the international competitiveness of some types of Japanese firms, which were considerably damaged by the ‘ICT revolution’ and that of other types of Japanese firms, which were maintained and strengthened even in that situation. Demand side as well as supply side will be examined in the analysis of Japanese firms’ competitiveness. In the Section II, I briefly describe the recent trend of Japan’s international trade and foreign direct investment (FDI) and changing competitiveness of Japanese firms. In the Section III, I try to clarify that the origin of Japanese firms’ international competitiveness is a system to minimise ‘the sum of production cost and transaction cost’. The Section IV is an argument on the severe influence of ‘ICT revolution’ on Japanese firms’ international competitiveness, which is based on the ‘minimisation of production cost and transaction cost’. The effects on demand side are also analysed in this section. The Section V is regarding a possible solution to recover the international competitiveness of Japanese firms through foreign direct investment (FDI). Overseas business activity is one good solution to recover the competitiveness of Japanese firms in damaged ARTICLES / 5 The author is Professor, Nishogakusha University, Tokyo, Japan. 123456789012345678901234567890121234567890123456789012345678901212345678901234567890123456789012123456789012 123456789012345678901234567890121234567890123456789012345678901212345678901234567890123456789012123456789012 123456789012345678901234567890121234567890123456789012345678901212345678901234567890123456789012123456789012 123456789012345678901234567890121234567890123456789012345678901212345678901234567890123456789012123456789012 123456789012345678901234567890121234567890123456789012345678901212345678901234567890123456789012123456789012 123456789012345678901234567890121234567890123456789012345678901212345678901234567890123456789012123456789012 89 Changing Competitiveness of Japanese Firms and Role of Japan’s FDI • SHIGEKI TEJIMA industries. In fact, it is a big chance for Japanese firms. However, it is also a big challenge for Japanese firms because characteristics of markets of intermediate goods and labour in foreign countries were not necessarily advantageous for Japanese firms. How to solve this issue of location ‘disadvantages’ is another big task for Japanese firms. Finally, the Section VI is the conclusion. II. A Recent Trend of Japan’s International Trade and Foreign Direct Investment (FDI) A Recent Trend of Japan’s International Trade When we see the recent trend of Japan’s international trade, it is noteworthy that Japan’s export has steadily grown and Japan preserved a high level of trade surplus while Japan’s import has also rapidly increased even in the period of so called ‘Japan’s lost decade (or low growth age)’ of the 1990s (Figure 1). Figure 1 Japan’s Export and Import Source: Compiled by the author from Japan’s MoF (Ministry of Finance) data. It seems that, generally speaking, Japanese companies have still maintained export competitiveness internationally although some of them were obliged to implement severe restructuring of their management, especially, in electronics and ICT industries. 70000000000