Growth and Change Vol. 24 (Winter 1993), pp. 87-106 The Globalization of Japanese Manufacturing Corporations DAVID W. EDGINGTON ABSTRACT This paper discusses recent shifts in the overseas investment strategies of Japan's major multinational manufacturing companies (MNCs). Based on a survey of twenty corporations it is postulated that the move towards the globalization of these compames has taken place in three distinct but overlapping phases: (I) a linear link-up to Japan, (2) a transition stage, based upon intemational specialization and “mesh” strategies, and (3) a tetra-polar strategic division of the world. The paper commences with a discussion of recent trends in MNC behavior, and then shows how overseas corporate organization has changed in the Japanese firms surveyed, especially after 1985. The implications of these changes among the major global regions is examined. The paper concludes with an assessment of whether the strategies of Japanese MNCs have converged with those of United States or European MNCs, and to what degree they have retained their own distinctive artnbutes. HE INCREASING INTERNATIONAL PRESENCE of Japanese firms has generated a great deal of interest (Yamamura 1989; Moris 1991a). Research has been carried out into the locauon of Japanese investments in host ‘countries, such as the United States or United Kingdom (see Chang 1989; Dicken 1983), yet relatively little attention has been paid to their different forms of spatial organization over time and at a global scale (for an exception see Morris 1991b). This omission may be compared to the rich theoretical work on multinational corporate (MNC) strategy based on American or European examples (for instance see Hood and Young 1979; Caves 1982; Taylor and Thrift 1982; Clarke 1985; Schoenberger 1990; and Dicken 1992). The overall purpose of this paper is to examine the globalization of major Japanese manufacturing companies as they entered the 1990s, with special attention given to their ‘emerging spatial patterns at a global regional scale. David W. Edgingion is an associate professor of geography at the University of British Columbia, Vancouver V6T 122. The author would like 10 acknowledge the financial assistance of the Japan Foundation (Nakasone Programme) which allowed research visits to Japan in the summers of 1989 and 1990. The helpful comments of two anonymous referees are also appreciated. ‘Submitted Sep 1991, Revised Oct 1992, Jan 1993 © 1993, Center for Business and Economic Research, Unversity of Kentucky Copyright © 2001. All Rights Reserved.88 GROWTH AND CHANGE, WINTER 1993 Following 1985, direct foreign investment (DFI) by major Japanese manufacturing companies grew rapidly in east and southeast Asia, as well as in the United States and the European Community, motivated in the former case mainly by cost pressures in Japan arising from the appreciation of the yen (endaka), and in the two lawer cases by the need to avoid trade friction (industrial Bank of Japan 1989, Focus Japan 1991). In addition, an increasing ‘number of Japanese parts manufacturers set up overseas production bases to keep pace with their ‘parent’ assembly company’s advances into offshore production. On top of this, Japanese business, for the first time, copied other western MNCs and began to acquire existing foreign firms as a means of gaining swift access to overseas markets and supplies. The net result of these events led to a dramatic increase in Japanese DFT in the last half of the 1980s. Figure 1 shows that 1985 was a clear breakpount in the growth of Japanese DFI. The surge in Japanese overseas investment after this time has been called the ‘third wave,” following simular growth spurts from 1969 to 1973 and 1978 to 1984 (Focus Japan 1991). By fiscal year (FY) 1989-90, Japan had surpassed both the United 70 60 50 Manufacturing Total 40 30 Y 20 US S BILLION 10 1981.84 1985 1986 1987 1988 Average 1989 1990 YEAR FIGURE 1. Japanese Direct Foreign Investment, FY 1981-1990 (Source Ministry of Finance, Japan) er 007 All RIGHTS RS eeeREGIONAL CHANGE IN EARNINGS DISTRIBUTION 89 Kingdom and the United States to become the world’s largest annual source of foreign direct investment capital (Focus Japan 1991). However, more recent Japanese Ministry of Finance statistics for FY 1990 indicate a total decline of 15.7 percent in outward DF1 when compared with a year earlier. Nonetheless, manufacturing DFI was maintained at roughly its FY 1989 levels (Figure 1), and it was mainly finance and insurance-related investments, together with the real estate sector, which lost substantial shares of total DF1 in this more recent period (Mainichi Daily News 1991). ‘With such a background, this paper evaluates the new global strategies of Japanese manufacturers against a broader body of literature on MNC corporate change during the 1980s. It reports on how the overseas strategies of Japanese manufacturers evolved after 1985, as well as how these strategies differed among various world regions. ‘The subsequent section sets the scene by scrutinizing recent trends in the global strategies of MNCs from advanced industrialized countries other than Japan. This is then followed by an analysis of Japanese corporate strategies from the author's survey of 20 Japanese corporations conducted during 1989-90. The paper concludes with a discussion of the degree to which Japanese MNCs have played ‘catch up’ with United States and European firms, and the degree to which they have retained their own distinctive autributes. Corporate Overseas Investment Strategies in the 1980s The last decade was characterized by the rapid growth of world DFT outflows and an expansion of overseas manufacturing activities among all developed countries. According to the United Nations (United Nations Centre on Transna- tional Corporations 1988), DFI world-wide grew at the rate of about 30 percent a year for the period of 1983 to 1989, three times faster than the growth of world exports and four times faster than the growth of world output. In this period of expansion it would seem that three factors shaped MNC strategies and overseas behavior. The first was a general intensification of international competition among MNCs and the consequent need to deepen their involvement in key overseas markets. Over the 1980s, the integration of national markets into a single global economy brought multinationals from different countries into simultaneous competition with each other in a large number of host countries. For example, ‘Schoenberger (1990) showed that many United States MNCs faced problems in defending their previously secure position in Western Europe against locally- based competitors. Conversely, United States multinationals also had to confront, increased competition on their own ground, as European firms found it profitable to serve the United States market from the inside rather than through exports Copyright © 2001. All Rights Reserved.90 GROWTH AND CHANGE, WINTER 1993 (Glickman and Woodward 1989). Concentration on developed nations’ markets by MNCs was also stimulated by the acceleration of economic growth in these countries during 1983-1989 and the need to respond quickly to changeable local demand for diversified, sophisticated, and high-value goods. Reviewing these changes, Ohmae (1985, 1990) identified a ‘triad’ of markets — North America (mainly the United States), the European Community, and Japan and the West Pacific — as the key global regions in which MNCs needed to have production bases. ‘A second factor concemed recent changes in production techniques and technological development. Here, the rapid introduction of flexible manufactur- ing techniques and small-batch production ran parallel to changes in consumer and industrial demand (Piore and Sabel 1984). These shifts led to the shortening of product cycles and the greater use of just-in-time delivery systems, and also increased the need 10 locate production in foreign markets (Schoenberger 1988). Significantly, this pattern contrasted with the dominant intemational production strategies of the previous decade when, for most MNCs, global strategies followed the ‘new international division of labor (NIDL)’ thesis, concentrating on keeping costs low by exploiting fully both cheap labor locations and economies of scale (Grunwold and Flamm 1985). Still, by the 1980s many commentators had begun to confront the notion that the relocation of production to low-wage Third World countries was the most important expression of structural change in the world economy (Jenkins 1984; Schoenberger 1988). A breakdown of ‘global Fordism’ occurred in this decade in favor of niche marketing, flexible production strategies, and creating ‘insider’ positions in key markets (as discussed, for example, by Ohmae 1985, 1990, and Roobeck 1987). A third element which fostered greater levels of overseas DFI was the revolution in information technologies (Langdale 1989). This facilitated the transfer abroad of top-level management and coordination functions, such as research and development (R&D), engineering, and finance, often leading to the setting up of regional offices (Friedman and Wolff 1982). These had the responsibility for coordinating and controlling the activities of MNC affiliates, and acted as intermediaries between head office and branch offices and production plants within any global region. This emerging trend towards use of regional headquarters was also consistent with trade policy developments in Europe in the latter 1980s as it moved toward economic union, in North America as it moved to a North American Free Trade Agreement (NAFTA), and also in Asia, where the economies of the newly industrialized countries rapidly began integrating with Japan’s (Ohmae 1990). ‘As noted above, Japanese foreign direct investment also accelerated to substantial levels following the revaluation of the yen in 1985. By the end of the 0-8 EeREGIONAL CHANGE IN EARNINGS DISTRIBUTION 91 decade it was growing more quickly than that of any other source nation, although its absolute global size was still substantially smaller than that from either the United States or the United Kingdom (Focus Japan 1991). During this period, Japanese MNCs were influenced by the three general forces acting upon global capitalism set out above; yet their singular cultural background suggests that they also possessed a distinctive approach to globalization, one which requires careful consideration and analysis. How, for example, have Japanese moves towards overseas production mirrored the strategies taken by MNCs from other western industrialized nauons? Are there clear contrasts in approaches taken by different types of Japanese corporations? How do their strategies differ among various parts of the world? Other commentators have already drawn attention to the new forms of globalization taken by Japanese MNCs (e.., Dicken 1988; Morris 1991a). This study, however, draws upon a unique survey of major manufacturing MNCs, carried out in Japan in 1989-1990, and designed to gauge in a more comprehensive way the impact of these bold shifts in Japanese DFI on corporate strategies and organizational patterns. Changes in Japanese Multinational Corporate Strategies The twenty manufacturing firms involved in the author's survey all fell within the top hundred firms in Japan by capital value and were involved in the automobile, electronics, optical instruments, and metals sectors. They were chosen because of their commitment to overseas markets; typically the overseas share of their total sales ranged from 30 to 70 percent (Edgington 1992). The objective of the survey was {0 examine their response to endaka, and their need to retain competitiveness and to face rapidly changing global markets. The survey combined the collection of statistical data with open-ended interviews of high-level executives in Japan. This allowed information to be gathered on the growth of overseas sales and production networks, the movement offshore of R&D facilities, the setting up of regional headquarters, as well as changes in corporate strategies and investment motivations for each of the triad regions (for further details see Edgington 1992). This group of firms does not constitute a statisucally representative sample. Nevertheless, several themes emerged from the survey and interviews relevant to examining the spatial development paths taken by Japanese MNCS in their trajectory towards globalization after 1985. Tables | and 2 show the degree to which firms set up (or acquired) overseas factories and new sales subsidiaries among the major world regions during the period 1985.90, The results indicate a 38.6 percent increase overall in the number of overseas factories and a 39.7 percent increase in new sales subsidiar- ies. The analysis confirms that, among these firms, rates of growth in the three triad regions (West Pacific, European Community and North America) were the Copyright © 2001. All Rights Reserved.92 GROWTH AND CHANGE, WINTER 1993 TABLE 1_ THE DISTRIBUTION OF JAPANESE OVERSEAS MANUFACTURING OPERATIONS AMONG GLOBAL REGIONS, FOR SELECTED CORPORATIONS, 1985 and 1990" ‘A AUTO INDUSTRY (N=8) 1985 1980 1985-90(%) WEST PACIFIC’ 57 7 +351 EUROPEAN COMMUNITY 12 18 +500 NORTH AMERICA? "1 21 +909 OTHER® 51 63 4235 TOTAL 131 179 +366 B ELECTRIC ELECTRONICS (N: 1985 1990 1985-90(%) WEST PACIFIC’ 110 158 4436 EUROPEAN COMMUNITY 45 62 4378 NORTH AMERICA? 42 59 4405 OTHER? 25 33 +320 TOTAL 222 312 3405 © OTHER’ (N=4) 1985 1990 1985-80(%) WEST PACIFIC’ " 7 4545 EUROPEAN COMMUNITY 16 at 4313 NORTH AMERICA® 7 12 414 OTHER? 8 11 4222 TOTAL 4a 61 +419 D TOTAL (AC) ( 1985 1980 1985-90(%) WEST PACIFIC’ 176 235 +355 EUROPEAN COMMUNITY 153 218 +425 NORTH AMERICA® 107 159 448.6 OTHER? 82 106 +293 TOTAL 518 718 4986 * includes joint ventures + includes cameras, metal fasteners and office machinery ‘east and southeast Asia, Australia and New Zealand, US, Canada and Mexico, 3 = Latn and South Amenca, ‘Africa and the Middo East ‘Source author's survey ‘Opyright © 2007 All Rights esenedREGIONAL CHANGE IN EARNINGS DISTRIBUTION 93 TABLE 2 THE DISTRIBUTION OF JAPANESE OVERSEAS SALES ‘SUBSIDIARIES AMONG GLOBAL REGIONS, FOR SELECTED ‘CORPORATIONS, 1985 and 1990" AUTO INDUSTRY (N=8) 1985 1990 1985-90(%) WEST PACIFIC’ 49 cal +449 EUROPEAN COMMUNITY a7 43 162 NORTH AMERICA? 31 40 4290 OTHER? 30. 44 +487 TOTAL 147, 198, +347 B ELECTRIC! ELECTRONICS (N=8) 1985 1980 1985-90(%) WEST PACIFIC’ 96 130 +354 EUROPEAN COMMUNITY 80 136 +700 NORTH AMERICA? 56 98 +750 OTHER? 42 51 +214 TOTAL 274 415, +515 © OTHER (Naa) 10985) 1990) 1985-90(%) WEST PACIFIC’ 3 34 +133) EUROPEAN COMMUNITY 36 39 +83 NORTH AMERICA? 20 a4 +50 OTHER? 10 11 +100 TOTAL 7 105 482 D TOTAL (A-C) (N=20) 1985) 1980 1985-90(%) WEST PACIFIC’ 178 252 3416 EUROPEAN COMMUNITY 73 101 +383 NORTH AMERICA? 60. 92 +533 OTHER? 85, 107 +259 TOTAL 395 552 3307 “includes joint ventures + includes cameras, metal fasteners and office machinery 1 = east and southeast Asia, Australia and New Zealand, US, Canada and Mexico, 3 = Latin and South America, ‘Ainca and the Middle East Source author's survey Copyright © 2001. All Rights Reserved.94 GROWTH AND CHANGE, WINTER 1993 highest, although some variations existed among the three categories of firms used in the survey analysis (ie. auto industry, electric/electronics, and others; see Tables 1 and 2). The situation up to 1985. ‘The survey asked corporations about their shifts in attitude to overseas activities during the study period, together with changes in their overseas strategies. In trying to summarize this material it proved useful to organize Japanese progress towards globalization into three distinct but overlapping stages. The first stage might be called the ‘Linear link-up to Japan’ phase (see Figure 2) as, prior to endaka, overseas units were strongly connected to their Japanese headquarters, but lacked any significant links to each other. ‘Even within the same host country, local production and sales units were often not integrated into one unit. For example, up to 1986, Nissan's United States plant in Tennessee reported to the company headquarters’ production operators in Hamamatsu, Japan, while their United States sales company in California reported to the company’s overseas business department in Tokyo (Kawasaki 1990). During this first stage, which lasted until the mid-1980s, most Japanese firms could still remain competitive by either exporting from Japan, or by sending parts and semi-finished articles to final market locations for assembly, and then selling finished products in host country markets. After that, corporations ‘quickly embraced the concept of ‘globalization,’ especially as they found they Assembly Market Finished Goods SIE ASIA usa Components = | Finished Goods ea Finished Goods | [ees ow Materials nnon AUSTRALIA }faw Materials Raw Materials il N.B S/E ASIA = Southeast and East Asian Countries FIGURE 2. Generalized Mode! of Global Strategies of Japanese Manufacturing Corporations’ Stage | (1970s) ‘Linear link-up to Japan’ _ rr OTT OTA RIK RSREGIONAL CHANGE IN EARNINGS DISTRIBUTION 95. could no longer confine the bulk of their manufacturing to just Japan. In particular, because of the stronger yen following 1985, and greater trade and investment friction in western countries, it became important to decrease exports and boost production off-shore. Besides this important shift 1n attitude, many ‘companies also raised their levels of local content ratios overseas. By way of illustration, in 1989 the level of local parts procurement by NEC's offshore electronics subsidiaries was estimated at around 30 percent, yet the company was anxious to raise this to 50 percent in the medium-to-long term, Reflecting similar political and economic pressures, Nissan in 1990 announced it planned to achieve 80 percent local content in its United Kingdom production by 1992 Vapan Economuc Journal 19902). The Transitional Stage. As the need to conduct additional production in offshore locations grew in the 1980s, the author was able to idenufy a transition- al stage towards full globalization, comprising ‘International Specialization and Mesh’ strategies Figure 3). During this phase, which for some firms began in the early 1980s, not only was it important to boost overseas production, but corporations also recognized the need wo reorganize and connect their production and supply bases on a global scale. R&D, mg2. Lech Production Goods/Camponents Goods/Components roe] uaran |e———> I ! f I ! cer} Asemoyy | Assemo! Market Y production | | Market W Production I europe L—4 tf usa Goods/ Goods/ Comonents componnes SIE ASIA J Goods/Components Usp Tanvon/Korea) Goods/Components ‘Medium Tech Production | Assembly => s170ng linkages + == weak linkages NB S/E ASIA = Southeast and East Azion countries FIGURE 3. Generalized Model of Global Strategies of Japanese Manufacturing Corporations Stage II (1980s) ‘Transition stage = international specialization and "mesh" strategies’ Copyright © 2001. All Rights Reserved.96 GROWTH AND CHANGE, WINTER 1993 NEC, for example, attempted to forge integrated operations through ‘meshing’ its overseas subsidiaries into a more decentralized network than before. Despite an overall dependence upon the Japan headquarters, its overseas units began to exchange parts across international borders under the guidance of its Japanese-based Purchasing Strategy Planning Division (Takeuchi 1990), ‘Among automobile companies, Nissan increased its range of cross-sourcing of products among its overseas subsidiaries; thus Nissan in Spain provided car panels and other parts for its factory in Mexico, in exchange for fully built-up trucks along the lines of the ‘world car’ concept (Kawasaki 1990). The international sourcing of parts and products implicit in this transitional phase was also employed to assist Japanese companies” domestic factories retain competi- tiveness. ‘At the same time that Japanese companies began to divert significant amounts of mature products and component manufacture 10 offshore locations, they also boosted domestic levels of R&D and changed their product mix in Japan. In addition, flexible manufacturing systems were introduced to switch from mass production of standard products to small-batch production of a broad range of advanced technology items (Florida and Kenney 1990). Table 3 shows the increase in domestic R&D expenditure of selected companies in the survey. The Hitachi Corporation in particular displayed a dramatic shift of production emphasis away from consumer electronics toward sophisticated telecommunica- tions and industrial equipment. ‘Thus in the 1988 to 1990 period, mature consumer products such as audio-visual merchandise slipped from 18 percent of Hitachi’s total net sales to 14 percent, while high-growth information and communications systems and electronic devices (e.g., computers and office equipment) rose from 30 to 33 percent (Hitachi 1990). Full Global Localization, In the third and most recent stage a limited number of Japanese compames moved further along the globalization and localization path, and made decisions to decentralize their world-wide head office functions to several regional centers. This stage may be called a ‘Tetra-Polar TABLE 3 INCREASE IN R&D EXPENDITURE OF SELECTED COMPANIES, FY 1988-1990 (IN BILLION YEN, % YEAR-ON-YEAR IN PARENTHESIS) FY 1988 FY 1989 FY 1990 Hitachi 2956(91) 3450(99) — 3800(107) Toshiba 2081(71) 2331 (76) 2560 (8 1) Mitsubishi Electnc 1980 (58) 3457(58) 4000 (6 2) Sony 1420(66) _1650(57) 1900 (65) Source Japan Econome Journal 11 August, 1990 SoviIght ] 2007 All Rights ReservedREGIONAL CHANGE IN EARNINGS DISTRIBUTION 97 Strategic Division of the World’ (see Figure 4), st comprised a configuration which allowed much more extensive localization of management and autonomous action on a regional basis, including localized R&D. The rapid growth in the number of overseas research and design operations set up by the companies after 1985 is shown in Table 4. This points to a substantial increase in all categories and indicates that over half were located in the United States. Besides more comprehensive localization, the third stage also implied more extensive intra-firm horizontal division of labor for the supply of parts and products, as well as, ‘TABLE 4 THE DISTRIBUTION OF JAPANESE OVERSEAS. RESEARCH AND DESIGN OPERATIONS AMONG GLOBAL REGIONS, FOR SELECTED CORPORATIONS, 1985 and 1990 ‘A AUTO INDUSTRY (N-8) 1985) 1980) WEST PACIFIC! i — EUROPEAN COMMUNITY = 6 NORTH AMERICA - 10 OTHER? 5 - TOTAL = 16 B _ELECTRICIELECTRONICS (N=8) 1985; 1990) WEST PACIFIC’ = 4 EUROPEAN COMMUNITY 2 9 NORTH AMERICA? 2 4 OTHER? - - TOTAL 4 27 © OTHER’ (N=4) 1985) 1990 WEST PACIFIC! - 2 EUROPEAN COMMUNITY - 3 NORTH AMERICA? 1 4 OTHER? = TOTAL 1 9 D_TOTAL (A-C) (N=20) 1985) 1990) WEST PACIFIC! - 6 EUROPEAN COMMUNITY 2 18 NORTH AMERICA? 3 28 OTHER? - - TOTAL 5 52 “includes cameras, metal fasteners and office machinery 1 = east and southeast Asia, ‘Australia and New Zealand, 2 = U S, Canada and Mexico, 3 = Latin and South ‘Amenca, Africa and the Middle East Source author's survey Copyright © 2001. All Rights Reserved.98 GROWTH AND CHANGE, WINTER 1993 USA Ha EUROPE HO Pure Research Pure Research Product / Process R & D Product / Process R & D Component Production / |_—_ +|| Component Production | ‘Assembly ‘Assembly M&A Activity M&A Actiity Marketing Marketing Supply Office Supply Office Retained Profits Retained Profits JAPAN HO Pure Research Product / Process R & D |/*—— High Tech Production components final goods u S/E ASIA HO Pure Research Product/Process R & O L__,] - component Production / "Assembly M&A Actwity Marketing Supply Office Retained Profits —— fows of products and technoloay NB M&A Actty = local merger and acquisition actrities FIGURE 4. Generalized Model of Global Strategies of Japanese Manufacturing Corporations Stage III (1990s) ‘Tetra-Polar Strategic Division of the World’ ————KSSreg OTREGIONAL CHANGE IN EARNINGS DISTRIBUTION 99 unhindered flows of technology, finance, and other materials between production units on a global scale. For firms which progressed to this position, the Japanese headquarters considered each of the worldwide regional centers as sources of ideas, products, and other resources that could be hamessed for the benefit of the total organization (see Ohmae 1985, Bartlett 1986). Table 5 shows that some firms were more advanced along this path than others, and in total, only a small number of companies in the author's survey (20 percent) had reached the stage of global localization with self-sufficient regional headquarters by 1990, Those companies which were among the first to produce overseas in the 1970s, such as Sony and Honda, emerged as the leaders. They reported to the author that their increase in offshore manufacturing led to the number of foreign subsidiaries to reach a critical mass, beyond the effective centralized control by a head office based in Tokyo or Osaka. Consequently, the necessity for management to be in close contact with overseas units had forced these corporations to set up a system of regional headquarters within the three triad areas, as well as Japan. These were then given considerable autonomy to achieve better coordination among their off-shore units. The areas where delegation of authority had progressed furthest included: local product develop- ment, including research and marketing; production of components; joint venturing, merger and acquisition activities, and other strategic alliances; and the TABLE 5 GLOBALIZATION OF MAJOR JAPANESE MNCs, 1990 Stage | Suzuki Stage i ‘Nippon Denso ‘Asahi Optic Mazda (Pentax) Toyota YK (zippers) Matsubishi Motors Stage il Mitsubishi Electnc NEC Sanyo Sharp Nissan Toshiba Sony Canon Matsushita Hitacht Honda Fuytsu Broth Stage | = Linear Link-up to Japan Stage Il = Transition Stage - Internatonal Specialization and Mesh Strategy ‘Stage III = Tetra-Polar System ‘Source company interviews Copyright © 2001. All Rights Reserved.100 GROWTH AND CHANGE, WINTER 1993 use of retained profits for long-term equipment purchases (Figure 4). In some cases, such as with Sony, even foreign directors had been appointed to these local regionally-based subsidiary companies (Japan Economic Journal 1990b). Along with the move towards new regional headquarters, pressures also arose for a more localized approach to product diversificauon. Japanese corporations who had progressed to stage three leamed that not all markets could be dealt with from product development centers in Japan, Consequently, certain Japanese manufacturers felt an increasing necessity to ‘style’ sports cars (e.g, Toyota), motor cycles (Honda), and other products for their United States and European markets based on local tastes. Such distinctive goods were then often imported back into Japan as a unique line of merchandise. Honda, in particular, had taken the idea of acting as a true ‘insider’ company even further than most. By 1990 it had created a broad ‘regional’ approach to its global strategy, whereby auto and cycle models were being developed expressly for the North American or European markets, and fully designed and produced within the region involved (Whitfield 1990). Significantly, by this strategy of differentiation according to each global region, Honda rejected the conventional ‘world car’ concept (originated by GM and Ford and emulated by Nissan) based upon the production of common parts and often common designs (Quinn Jr. 1988; Oishi 1991). Implications Among World Regions This section moves to a discussion of the regional consequences of this three-stage shift by Japanese companies toward global localization. Again, while the author's survey may not be truly representative, the results highlighted several differences in motivations and investment strategies between the triad regions, The sub-regional implications of the firms’ DFI pattems will be dealt with in another paper. ‘North America and Western Europe. Ona regional basis, the United States remained consistently the number one host country to Japanese DFI, yet the European share of annual investment abroad rose sharply post-endaka (source: Ministry of Finance 1992). The author’s survey results mirrored these trends. Japanese firms assessed the growth potemtal of the European Community market to be high, and new production plants were set up aimed at taking advantage of expanded business opportunities after market integration, as well as in response to trade friction and the feared emergence of a ‘fortress Europe.’ Virtually all production in the European Community and United States was oriented to the local market, especially as Japanese DFI in both of these regions was prompted, to a great extent, by Japanese government pressure to decrease trade friction through local production. This was the main reason, for example, for major automobile and electricalelectronics firms deciding to build large-scale manufac-REGIONAL CHANGE IN EARNINGS DISTRIBUTION 101 turing plants in North America and Western Europe during the 1980s (see Glickman and Woodward 1989; Mair et al. 1988; and Morris 1991c). ‘While the survey found that new sales and production bases were the major forms of Japanese business activities, new types of investments began to emerge during 1985-1990, reflecting the progress towards global localization covered in the previous section. For instance, many firms strengthened their R&D bases to develop products for the local consumer and industrial markets, and to inspect the quality of parts that use locally available materials. By way of illustration, Nippon Denso in 1987 established an engineering center in the United States that could change designs for the delivery of auto parts to the “Big Three’ assemblers (Ohiwa 1989). Electronic firms established ther R&D facilities to obtain the latest information on various items, including high definition TV and computers, and to carry out basic research overseas, Other firms strengthened sales capacities to cope with ever intensifying competition in local markets, e.g., by increasing service stations and technical support centers. Thus auto firms, such as Honda, Toyota and Nissan, built up second sales networks for up-market cars (respecuvely, the Accura, Infiniti, and Lexus) (Edgington 1992). West Pacific. In a similar way, Japanese company strategies in the West Pacific moved through a number of phases in the period 1985-1990. Within a ‘matter of months after the 1985 currency realignment, many established domestic industries found themselves compelled to move at least some of their roduction offshore to remain competitive. For those companies that had relatively standard items (e.g. Pentax cameras, Sharp calculators) the adjacent Asian NIES (the Republic of Korea, Taiwan, Singapore, and Hong Kong — the “four Tigers’), and ASEAN countnes provided convenient cheap wage locations for new or expanded production centers. Matsushita Electric moved the manufacture of all products costing less than a hundred dollars over to its global export mandates (Yanaguicht 1989). Similarly, other companies, such as NEC, found that purchasing of standard manufacturing parts and components from suppliers based in the West Pacific was a prudent approach to ward off the effects of endaka, and so opened special international procurement offices designed to service its world-wide operations (Takeuchi 1990). ‘As with the case of the United States and European Commumty, certain Japanese firms subsequently began to sec the need for more integrated facilities in this region, in the interest of greater productive and strategic flexibility. By 1989 a number of companies decided to move R&D units into a select group of NIEs, particularly Tatwan. Matsushita, for example, established the Matsushita Electric Institute of Technology in Taipei to allow a quicker and more effective response to changes in the maturing NIEs markets (Yanaguichi 1989). In 1987 Copyright © 2001. All Rights Reserved.102 GROWTH AND CHANGE, WINTER 1993 Sony opened in Singapore a new plant to produce die castings for precision machinery for exports to its Asian subsidiaries. It also set up a design center (Sony Precision Engineering Centre) for household electric appliances, together with a distribution center and intemational procurement office. Sony also selected Singapore as one of the four pillars of its new global strategy 10 establish regional headquarters in Japan, European Community, North America, and Asia (Sugiyama 1990). While the Asian NIEs attracted higher order operations, their soaring wages and sharp currency appreciations after 1988 made them unattractive for labor-intensive assembly operations, Consequently, following 1988, many new investments began to bypass these nations, and a number of existing plants closed down. ‘The new low-wage target nations included the ASEAN nations of Thailand, Malaysia, the Philippines, and Indonesia, as well as the Peoples Republic of China (Steven 1990). Conclusions orporate attitudes towards overseas manufacturing activities. While there were often mayor differences in approach between Japanese companies, a new strategy of ‘globalization’ was introduced involving a greater commitment to overseas activities. The exact configuration of activities was found to va the three triad regions according to the attributes of each location, The United States) and Western Europe were seen as major markets, whereas much investment in the West Pacific was aimed initially at reducing the production costs of exports, ‘The question can now be posed whether Tapanese MNCS have followed the overseas strategies of the United States and European firms. The survey results seem to confirm this in part and revealed that, while Japanese manufacturers were latecomers to offshore production, their trajectories during 1985-1990 resembled the earlier shifts from trade to investment by American and European MNCS. For instance, in order to retain competitiveness, Japanese firms engaged in NIDL strategies, although not as extensively as those from the United States or Wester Europe. In addition, the results indicated that their globalization ‘trajectory became market driven and did not depend on cost reduction alone, and so resembled the recent ‘insider’ approach taken by American MNCs in Europe, and European companies in the United States. Despite this apparent convergence with United States and European MNCs, the study also pointed to some distinctive differences in approach. Thus Japanese firms seem to be progressing to a global strategy which facilitates the full integration of parts, products, finance, and technology between all three triad regions. For example, in Asia-Pacific countries Japanese overseas subsidiaries TIN ODOT A RIGS RESREGIONAL CHANGE IN EARNINGS DISTRIBUTION 103 ‘made a strong commitment to upgrade product development, and often recorded a higher sales ratio directed towards local markets than those of the United States, which were chiefly geared to selling local products back to the American market along the conventional NIDL lines (Ministry of International Trade and Industry 1990). In addition, unlike many of their equivalent corporations in the United States and Europe, Japanese firms seemed to realize that maintaining high levels of R&D, including basic research, as well as paying attention to new product development, was the only option left to ensuring that a serious “hollowing out’ of the domestic economy would not occur in the 21st century (Edgington 1990). Moreover, in Japan's case, overseas investment has been driven by the rise of protectionist sentiment, and this has bolstered the setting up of integrated networks in each of the three triad regions. It has not escaped the notice of Japanese companies that the tetra-polar model — with its stress on regional self sufficiency, as well as inter-regional ‘mesh’ networks — provides not only insurance against wide international currency fluctuations, such as occurred in the mid- 1980s, but also provides some measure of security should the emergence of trade blocs occur in the 1990s. By putting in place a system of sales and production centers, the leading companies have attained a measure of autonomy within the European Community, the North American Free Trade area (Canada- United States-Mexico), as well as the West Pacific. If the world trading economy collapses during the 1990s then Japanese firms have a base in each triad. If the world economy grows, then trade between each block can also expand. Japanese corporate strategy then is clearly an evolving, somewhat pliable, phenomenon. For example, Honda’s regional design and production strategy recorded at the end of the study period may well represent a Stage III, Part B of the tetra-polar model, or even a sign of a new Stage IV. Moreover, Ohmae (1990) idemtfies a fifth stage of globalization in which companies must create a system of values shared by company managers around the globe rather than a nation-based orientation. He questions, however, whether Japanese firms can evolve into truly global companies without incorporating overseas managers into the top echelons of the parent corporation. By 1990, only Sony had achieved this, and most Japanese executives acknowledged that their overseas units were far less autonomous than foreign subsidiaries of westem-style world companies (Business Week 1990). In addition, doubts have been expressed over the authenticity of Japanese claims concerning localvation. By way of illustration, Japanese car-makers are known to often judge local content to include not only the value of production but also local transport costs and the assembly labor costs of imported parts and components; these often comprise 50 percent of Copyright © 2001. All Rights Reserved.104 GROWTH AND CHANGE, WINTER 1993 publicized local content levels (Ozawa 1991). Nonetheless, the evidence presented in this paper suggests that some, at least, of the major Japanese corporations are now poised to achieve even more substantial globalization and localization of their activities during the 1990s. REFERENCES Bartlet, C.A. 1986, Building and managing the transnational: The new organization challenge. In M.E. Porter, ed. 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