Patterns and strategies of Foreign Direct Investment: the case of Japanese firms

Abstract

This paper is to study globalization motives and strategies of Japanese manufacturing industries by analyzing the causes and patterns of foreign direct investment (FDI) of Japanese manufacturing firms. We use regression analysis to determine internally driving-out factors and externally-inducing factors. Japanese FDI strategy has gone through three different stages; from natural resource-seeking investment in the 1950s and 1960s to market-expansion investment in the 1970s and 1980s and to a combination of cost-reducing (low-cost labor-seeking) investment and market-penetrating investment in the 1990s. Our findings show that Japanese FDI in Asia and other developing countries tends to be in labor-intensive sectors where Japanese firms are losing their comparative advantages at home. The main motive for FDI into these regions is low-cost resource seeking. On the other hand, Japanese FDI in the US and Europe tends to be knowledge-intensive sectors where Japanese firms attempt to internalize transaction and information costs by globalizing its production. The main motive for FDI into these regions is market-seeking.