Explaining the Rise of East Asian Multinationals: State-Industry Links, a Stages Model of Structural Change, and Japan as a Precedent Setter

Abstract

This paper examines state‐ and industry‐linkages in the course of the rise of multinationals in emerging markets by drawing on East Asian experiences. Multinationals are both a creature and an instrument of industrial structural change that characterizes the process of economic development. In order for emerging markets to initiate and sustain catch‐up industrialization, they need government involvement to spark a takeoff and nurture their own multinationals so that they can exploit overseas business opportunities at each stage of structural change. Hence, a stages model of growth with five tiers of industry is adopted as an overall analytic. In this regard, Japan set two precedents in (i) transplanting low‐wage production abroad via outward FDI as a catalyst for industrial upgrading at home (i.e., what may be called “comparative advantage recycling in low‐wage production”), and (ii) combining its resource‐ seeking FDI with economic cooperation in emerging host economies (i.e., development‐ oriented resources diplomacy). The precedent of low‐wage production transplantation was followed by the NIEs and has just begun to be replicated by China. The precedent of FDI‐cum‐ economic cooperation was likewise followed by South Korea and Taiwan and is currently most actively repeated by China in its efforts to secure overseas minerals and fuels.