A presentation outlining key Details about Japan's outward FDI during globalization .

1. Japan’s Outward FDI in Globalization
Daisuke Hiratsuka
Director General of Development Studies Center
Institute of Developing Economies, JETRO
81-43-299-9676, Fax. 81-43-299-9763
daisuke_hiratsuka@ide.go.jp
25-26 April, 2007

2. 2
1. What does determine outward FDI?
2. New Asian economic landscape
3. Distribution of Japan’s outward FDI
4. Japan’s outward FDI inside Asia
5. Evolution of global presence by
Japanese firms
6. International expansion by Japanese
SMEs
7. Perspective of Japanese outward FDI
in further economic integration
Contents

3. 3
1. What does determine outward FDI?
Presence of
transport cost
Country A
Agglomeration
Force
(FDI in country A)
Dispersion
Force
(FDI in country B)
Increase of
factor prices
In country A
Increase of
profits
Decrease of
profits
Fall of
transport cost
Increase of
profits
Increase of
factor prices
In country B
Country B:
A new frontier
1. Agglomeration and dispersion forces are sources of FDI.

4. 4
The differences in factor prices makes the “flying geese pattern” in terms of FDI.
development
1. What does determine outward FDI?
Thailand
Indonesia
Malaysia
Korea
Taiwan
Hong Kong
Singapore
Japan
Cambodia
Laos
Vietnam
India
China
NIEs
ASEAN-4
Labor-intensive goods
Durable consumer goods
High-tech goods
Capital goods
R&D
Myanmar
Emergining countries

5. 5
COVER: NHK
DISK:HOYA
SCREW: KATAYAMA
SEAL: KOKOKU, TOKAI
RAMP: DAICHI
TOP CLAMP: BPI, SOODE
LATCH: NOK
PLATECASE: BRIDGESTONE
LABEL: SANSAI
FILTER: SSRETEK
PCBA: SSCI
SUSPENSION: NHK
Japan
SPNDLE MOTOR:
NIDEC, NMB
BASE: WEARNS
CARRIAGE:
FUJIKURA, SANEI
FLEX CABLE: NOK
PIVOT: NMB
SEAL: KOKOKU
VCM: SMT,TDK
TOP COVER: NOK, NHK
PCBA: SSCI
HGA:UTC
HAS:UTC Thailand
BASE: KENSEISHA
PIVOT: NSK
SPACER:KENSEISHA
VCM:SHINETSU
BASE:ASAHI
CARD:SCI, CELESTICA
TOP CLAMP: SCL,
CELESTICA, SOODE
DISK: KOMAG
COVER: KURODA,
CHEUNGWOH
SCREW:TIORMAC,
SPURWAY
PIVOT: NSK
PC ADP: JST
DISC: HOYA
Singapore
PCBA:GBM,SSCI
CARRIAGE:TDK
HGA: HSPC
BASE: BPI
HEAD: HGST
SUSPENSION:NHK
DAMPING PLATE: IMEAS
COIL SUPPORT: TOTOKU
PCBA: IONIX
TOP CLAMP: GML
DISK: HGST
HEAD: HGST
SUSPENSION:HTI
USA
FILTER CAP: GML
W.SUSPENSION: SUMITOMO
VCM: SHINETSU
PCBA: SOLECTION
Malaysia Hong Kong
Taiwan
Philippines
Indonesia
China
HEAD: GDL
Mexico
1. What does determine outward FDI?
Industry have agglomerated in many Asian countries, and
they have been linked to produce a good: most of suppliers
are Japanese affiliates.

6. 6
• Production process is becoming sequential stages of
production, and instead of final products, parts and
components within the same industry are traded.
• Assuming the two country case, a good across border
four times: at the exported from the country A; imported
into the country B; exported from the country B after
processing , and imported back to the country A.
• In the actual sequential production, one good crosses
borders many times to produce a final good.
• It implies that the reduction of trade costs, such as trade
liberalization and facilitation measures, would develop
the sequential production, increasing FDI flows.
1. What does determine outward FDI?

7. 7
0
10
20
30
40
50
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
Primary Goods
Processed goods
Parts and components
Capital goods
Consumption goods
（％）
Processed goods
Capital goods
Parts and components
Consumption goods
Primary goods
2. New Asian economic landscape: trade pattern inside Asia has
changed from inter-industry to intra-industry that has traded parts
and components.
Note: Asia contains the ASEAN five countries (Indonesia, Malaysia, the Philippines,
Singapore, and Thailand), China, Japan, Korea, and Hong Kong. Imports of China are
available after 1998.
Source: IDE-JETRO/RIETI

8. 8
2. New Asian economic landscape: Import relation between Japan
and ASEAN
0
10
20
30
40
50
60
70
1980 1985 1990 1995 2000 1980 1985 1990 1995 2000
Primary Goods
Processed goods
Parts and components
Capital goods
Consumption goods
（％）
Processed
Capital
Parts
Consumption
Primary
ASEAN→Japan Japan→ASEAN
Parts
Capital
Consumption
Primary
Processed

9. 9
2. New Asian economic landscape: Import relation between China
and ASEAN
0
10
20
30
40
50
60
70
80
1980 1985 1990 1995 2000 1980 1985 1990 1995 2000
Primary goods
Processed goods
Parts and components
Capital goods
Consumption goods
（％）
Processed
Capital
Parts
Consumption
Primary
ASEAN→China
China→ASEAN
Consumption
Capital
Primary
Processed
Parts

10. 10
W orl
d m arket
the
Americas
Europe
Asia
Pacific
Other
1997 (582) 100.0 71.4 28.6 11.3 5.4 5.8 6.1
1998 (593) 100.0 71.1 28.9 13.4 6.0 4.9 4.6
1999 (643) 100.0 72.5 27.5 12.4 5.4 5.5 4.2
2000 (668) 100.0 71.9 28.1 12.6 5.2 6.4 3.9
2001 (715) 100.0 69.7 30.3 13.7 5.5 6.7 4.4
2002 (728) 100.0 68.0 32.0 13.7 6.0 7.8 4.6
2003 (738) 100.0 67.9 32.1 12.9 6.1 8.2 4.9
2004 (774) 100.0 67.3 32.7 12.2 6.4 8.8 5.3
2005 (804) 100.0 66.1 33.9 12.5 6.3 10.1 5.0
domestic overseas
FY
No. of
firms
circulated
Notes: 1. Above chart shows results of firms listed on the Tokyo Stock Exchange (TSE), whose fiscal year ends
between December to March, and who release sales and operating profits by region. (Firms in banking and
insurance industries are excluded.)
Note 2: Year-on-year growth rates for sales/operating profits are calculated to include the same group of firms (to
allow for comparison).
Note 3: “Europe” includes Africa and the Middle East. “Others” includes answers wih multiple regions combined
(e.g. “Europe and the US”).
Source: prepared by JETRO based on Toyo Keizai Shimposha’s “Kigyo Zaimu Karte 2007”
Table 1 Share of sales for TSE-listed firms (by region)
2. New Asian economic landscape: overseas market is increasing
share in sales and profits.

11. 11
Notes: 1. Above chart shows results of firms listed on the Tokyo Stock Exchange (TSE), whose fiscal year ends
between December to March, and who release sales and operating profits by region. (Firms in banking and
insurance industries are excluded.)
Note 2: Year-on-year growth rates for sales/operating profits are calculated to include the same group of firms (to
allow for comparison).
Note 3: “Europe” includes Africa and the Middle East. “Others” includes answers wih multiple regions combined
(e.g. “Europe and the US”).
Source: prepared by JETRO based on Toyo Keizai Shimposha’s “Kigyo Zaimu Karte 2007”
Table 2 Share of profits for TSE-listed firms (by region)
2. New Asian economic landscape: overseas market is increasing
share in sales and profits.
W orl
d m arket
the
Americas
Europe
Asia
Pacific
Other
1997 (582) 100.0 76.6 23.4 9.8 3.4 4.8 5.3
1998 (593) 100.0 73.4 26.6 13.8 4.8 4.4 3.6
1999 (643) 100.0 75.0 25.0 14.1 2.1 5.0 3.7
2000 (668) 100.0 79.9 20.1 10.4 0.7 6.0 3.0
2001 (715) 100.0 76.0 24.0 12.4 0.6 6.7 4.2
2002 (728) 100.0 72.9 27.1 13.0 2.8 7.2 4.1
2003 (738) 100.0 73.3 26.7 11.1 4.3 7.5 3.7
2004 (774) 100.0 71.8 28.2 10.9 4.7 8.6 4.0
2005 (804) 100.0 70.8 29.2 10.8 4.7 10.0 3.7
FY
No. of
firms
circulated
domestic overseas

12. 12
3. Distribution of Japan’s outward FDI
0
10,
000
20,
000
30,
000
40,
000
50,
000
60,
000
70,
000
80,
000
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Oceania
Africa
Europe
Mid & NearEast
Asia
Latin America
North America
Figure 6. Japan's Outward FDI (based on reports and notifications) by
Country/Region (Million US$)
Note: Firms with capital more than 100 million yen are to report to the
Ministry of Finance, Japan.
Source: Original data from the Ministry of Finance of Japan, and
converted into from Japanese yen to the US dollar by JETRO.
Inactive up to 1985
1st boom 1985-92
2nd boom
1993-97
After
the crisis

13. 13
3. Distribution of Japan’s outward FDI
Fiigure 7. Share of Japan's Outward FDI (based on reports and
notifications) by Country/Region (%)
Note: Firms with capital more than 100 million yen are to report to the
Ministry of Finance, Japan.
Source: Original data from the Ministry of Finance of Japan, and
converted into from Japanese yen to the US dollar by JETRO.
0.
0
10.
0
20.
0
30.
0
40.
0
50.
0
60.
0
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
North America
Asia
Europe

14. 14
4. Japan’s outward FDI inside Asia
Fiigure 8. Japan's Outward FDI (based on reports and notifications)
inside Asia by Country/Region (Million US$)
Note: Firms with capital more than 100 million yen are to report to the
Ministry of Finance, Japan.
Source: Original data from the Ministry of Finance of Japan, and
converted into from Japanese yen to the US dollar by JETRO.
0
2,
000
4,
000
6,
000
8,
000
10,
000
12,
000
14,
000
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
the rest of Asi
a
Tai
w an
Korea
H ong Kong
C hi
na
ASEAN 10
Before the Plaza Accord
After the Plaza Accord Before
the crisis
After
the crisis

15. 15
4. Japan’s outward FDI inside Asia
Fiigure 9. Share of Japan's Outward FDI (based on reports and
notifications) inside Asia by Country/Region (%)
Note: Firms with capital more than 100 million yen are to report to the
Ministry of Finance, Japan.
Source: Original data from the Ministry of Finance of Japan, and
converted into from Japanese yen to the US dollar by JETRO.
0.
0
10.
0
20.
0
30.
0
40.
0
50.
0
60.
0
70.
0
80.
0
90.
0
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
ASEAN10
C hi
na
Hong Kong

16. 16
4. Japan’s outward FDI inside Asia
Fiigure 10. Share of Japan's Outward FDI (based on reports and
notifications) inside ASEAN 6 (Million US$)
Note: Firms with capital more than 100 million yen are to report to the
Ministry of Finance, Japan.
Source: Original data from the Ministry of Finance of Japan, and
converted into from Japanese yen to the US dollar by JETRO.
0
1,
000
2,
000
3,
000
4,
000
5,
000
6,
000
7,
000
8,
000
9,
000
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Vi
et N am
Thai
l
and
Si
ngapore
Phi
l
i
ppi
nes
M al
aysi
a
I
ndonesi
a
After
the crisis
Before
the crisis
After the Plaza Accord
Before the Plaza Accord

17. 17
4. Japan’s outward FDI inside Asia: the rise of China
Figure 11 Japan's outward FDI inside Asia (based on balance of
payments basis, net flow, US$ million)
Sources: Prepared by JETRO from Ministry of Finance Balance of
Payments Statistics and Bank of Japan foreign exchange rates
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
China Northeast Asia NIES ASEAN5 India
The rise of
China: the entry
in the WTO
ASEAN
Was the
major host

18. 18
4. Japan’s outward FDI inside Asia: Resurgence of ASEAN, the so
called “China olus one”
Figure 12 Japan's outward FDI inside Asia (based on balance of
payments basis, net flow, US$ million)
Sources: Prepared by JETRO from Ministry of Finance Balance of
Payments Statistics and Bank of Japan foreign exchange rates
-2,000
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
2,500
3,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Singapore Thailand Indonesia Malaysia Philippines
The rise of Thailand
under the China
plus one

19. 19
6. International expansion by Japanese SMEs
1. In the mid 1980s, SMEs who afforded enough
had in human resources and capitals, went to
overseas, in particular to ASEAN, exporting
back goods to Japan.
2. SMEs have suffered from the decreasing
demands. As a breakthrough in severe
business environments, Japanese SMEs have
advanced to operate in Asia, in order to
participate in the production networks.
3. After the China’s entry in WTO in 2001, a large
number of SMEs have advanced to China,
seeking market.
4. SMEs have at least two overseas production
sites; one in ASEAN and another in China.

20. 20
6. Perspective in further economic integrationn
1. Japan will increase investment in Japan; the
so-called “return to Japan.”
2. Production and distribution networks have
been self-organizing, meaning that Japan will
continue outward FDI at high level.
3. But, the presence of Japan’s FDI in Asia will be
down, because most of Japan’s FDIs are the
expansion of existing facilities, meanwhile
FDIs by other Asia are new investments.
4. Japan will increase FDIs in the new frontiers
such as Vietnam, India, and other emerging
economies.