The Impact of Foreign Direct Investment in Japan: Case Studies of the Automobile, Finance, and Health Care Industries

Abstract

Although the amount of foreign direct investment (FDI) in Japan relative to gross domestic product (GDP) or other countries has been rather small, this does not necessarily mean that its role has been negligible. In fact, quite the opposite is true: in a number of industries, foreign-owned firms now account for more than 10 percent of total employment and have become an integral element of the business landscape. What is more, as their presence has grown, foreign-owned firms are increasingly having an impact in shaping the business dynamics of some these industries. The purpose of this chapter is to examine such industry dynamics in greater detail through a series of case studies. Doing so not only provides concrete examples of how foreign acquisitions help to raise the performance of acquired firms, thus illustrating the total factor productivity (TFP) improvement effects discussed in Chapter 5. It also yields at least anecdotal evidence of some of the knowledge spillovers and competition effects taking place as a result of inward FDI. To this end, the individual case studies examine the particular structure of an industry, the regulatory framework (where this has played a role in shaping the industry), and recent changes therein relevant for FDI. The case studies then consider the role of FDI in the sector, hone in on prominent cases of FDI, and show how the presence of foreign multinationals in one way or another has affected domestic firms or the industry as a whole.