Complex FDI in Japanese multinationals

1 Kazunobu Hayakawa and Toshiyuki Matsuura INTRODUCTION 6.1 Due to massive foreign direct investment (FDI) in East Asian countries since the Plaza Accord, Japanese multinational enterprises (MNEs) have set up multiple plants and affiliates in the region. In Asia,2 Japanese MNEs in the information and communication devices industry have more than three manufacturing affiliates on average,3 and the average number of such affiliates in Asia is rising. In particular, among large MNEs, the average number of affiliates increased from 3.87 to 4.17 between 1995 and 2001. Another remarkable fact is that this upward trend can be found only in Asia. What are the causes and consequences of setting up overseas affiliates? In the FDI literature, many types of FDI classification have been proposed. Market-seeking, resource-seeking and efficiency-seeking FDIs are the traditional classification of FDI, which is based on the differences in MNEs’ motives for FDI. Market-seeking FDI aims at securing and developing existing foreign markets and at gaining access to new markets. The aim of resource-seeking FDI is to secure access to raw materials required for production, while that of efficiency-seeking FDI is to exploit cheap primary factors, e.g. low wages, of the host country. Horizontal and vertical FDIs are other well-known classifications,4 which focus on the MNEs’ production structure. The former type of FDI (HFDI) duplicates a subset of their overall activities, and the latter type of FDI (VFDI) puts all of their production of a particular component part in a separate foreign plant. In addition,….