Open Society, Closed Market?

Abstract

It appears that Japan pursues a lopsided internationalization strategy—keeping foreign companies out while at the same time investing massively in foreign markets. This paper examines whether this is an appropriate position. First, we look into the foreign direct investment issue and try to understand the current situation in Japan. In particular, we analyze the underlying two-fold assumption: (a) that there are international companies willing and able to make large investments in Japan, and (b) that they cannot do it because the Japanese market is closed. The ratio of inbound FDI (foreign direct investment) to GDP is considerably lower in Japan than in other major industrialized nations, and Japanese companies directly invest four times as much abroad as foreign companies invest in Japan. This does not mean, however, that the Japanese market is closed. In fact, companies are deciding to invest in other countries where conditions are (or are perceived to be) more conducive to penetration. Second, we compare FDI with cross-border portfolio investments. Compared to FDI, portfolio investments in listed companies in Japan are relatively high. Foreign investors hold around one-fourth of the shares at listed companies. This figure has been rising continuously for 20 years, interrupted only in 2001–02 and in 2008–09. Third, we take a closer look at Japan's international trade and the overseas business of Japanese companies. Japan's industrial sector has integrated itself very actively in global trade (45 % of its sales are posted overseas), but the Japanese economy is not “export-driven”. Its degree of integration into world trade is rather low. We assume that this can be explained by qualitative, HR-related factors. Finally, we ask what the chances are that ongoing internationalization will succeed amid and after the global recession of 2008–09.