Japanese Investment in the World Economy: A Study of Strategic Themes in the Internationalisation of Japanese Industry (review)

As the title suggests, this is an ambitious book. Broad in scope and rich in detail, it examines the rise and fall of Japanese foreign direct investment (FDI) in nearly two dozen industries, from electronics and automobile manufacturing to real estate and construction services, in almost every region of the world over the past half century or more.

The result is an encyclopedic volume (459 pages with index) that should be quite useful for East Asian business scholars or those interested in the overseas activities of Japanese firms. Others, I fear, will simply find it gray and imposing. Farrell does not break any new ground here and does not try to advance much in the way of theoretical or empirical argument. He has written, instead, a sweeping survey of Japanese FDI.

If there is a focus in this book, it is on the motivation of Japanese investors in different industries and different host economies. Even here, though, we end up with something that is more taxonomical than analytical. Investment in distribution networks, especially in developed country markets in the United States and Europe, is dubbed, unsurprisingly, "trade-servicing." Much of this pioneering FDI has been carried out over the years by general trading companies such as Mitsui Bussan and Mitsubishi Shōji. Investment in projects to extract or develop raw materials for the home country is categorized as "resource-seeking." The $2 billion Asahan Dam/Smelter project in North Sumatra, Indonesia, is a classic example; it was financed largely with Japanese bilateral aid and was designed to provide aluminum for the Japanese market. Manufacturing investment in Southeast Asia and coastal China, where labor costs remain far below those in Japan, is called "efficiency-seeking." Think of the billions invested by automobile and electronics producers, both assemblers and parts suppliers, in places such as Bangkok and Tianjin. Investment designed to circumvent trade barriers is categorized as "market-seeking." I am extrapolating here; Farrell actually uses this term on pages 30–32 to describe what appears to be "trade-servicing" investment. But his discussion of "defensive" FDI to the United States and Europe, where antidumping measures and other trade restrictions targeted Japanese manufactured exports, especially in the 1980s, highlights the corporate goal of "avoiding market closure" (p. 36). This is one occasion in which a more aggressive editor might have helped to clarify Farrell's taxonomical point. Finally, investment in Western firms with coveted patents or know-how is described as "strategic asset-seeking." In 2006, for example, Toshiba purchased Westinghouse and thereby acquired valuable technology for building nuclear reactors.

As an organizational scheme, Farrell's classification of Japanese FDI according to motivation is helpful; it gives us an intuitive feel for why different Japanese industries might have moved offshore at different times to different places. But unlike the theoretical work of scholars such as Terutomo Ozawa (Colorado State University) or Mireya Solis (American University), the book does not yield new insight about the microeconomic behavior of Japanese multinational corporations (MNCs) or the politics of "economic cooperation." And unlike the empirical work of scholars such as René Belderbos (Katholieke Universiteit Leuven) and Fukao Kiyoshi (Hitotsubashi University), it does not confirm or reject any of the many hypotheses about Japanese FDI. Farrell is neither an economist nor a political scientist, and he does not engage in either statistical modeling or firm- or agency-level interviewing.¹

Over the last four decades, perhaps the most intriguing question about Japanese FDI has been this: Is it unique or somehow different from investment by MNCs headquartered in Western countries? In an economistic version of Nihonjinron, Kojima Kiyoshi argued that it is indeed different.² Japanese FDI, he wrote, tends to be "trade-augmenting" because it is concentrated in industries that have lost, or are losing, competitive (or comparative) advantage at home but that are gaining competitive (or...