Takeover or Makeover? Japanese Investment in America

New York Times, January 9, 1992, p. A6. Interestingly, while the Japanese press was captivated by Mrs. Bush's poise and charm, in their haste to play up the symbolic weakness of America no one mentioned the President's Japanese-like fortitude in carrying on with the banquet despite his illness, nor the remarkable speed and good humor with which he recovered.

Cf. Crystal Graef S. , In Search of Excess (New York, NY: W.W. Norton, 1991).

According to initial figures, Japanese direct investment in the United States plummeted 93% in the first half of 1991. Total foreign investment fell a little over 70%. Japan Times Weekly International Edition, December 2–8, 1991, p. 18.

New York Times, March 4, 1992, p. C2; Business Week, November 18, 1991, December 16, 1991, p. 7.

Los Angeles Times, January 23, 1992, p. A1.

For a good recent example, see Graham Edward M. Krugman Paul R. , Foreign Direct Investment in the United States (Washington, D.C.: Institute for International Economics, 1989).

Powell Jim , The Gnomes of Tokyo, rev. ed. (New York, NY: American Management Association, 1989), p. ix.

Business Week, June 26, 1989, pp. 117–119.

New York Times, November 11, 1990, p. 1.

Epstein Stephanie , “Buying the American Mind: Japan's Quest for U.S. Ideas in Science, Economic Policy and the Schools,” The Center for Public Integrity, 1991, pp. 10–11.

Epstein , op. cit., p. 9.

American Banker, January 4, 1990, p. I.

Newsweek cover, October 9, 1989.

New York Times, November 27, 1990, p. C1; November 20, 1991, p. 1; February 5, 1992, p. B1.

U.S. Department of Commerce, Survey of Current Business (July 1991). Note that petroleum and coal products is included in “manufacturing” in this table in order to be consistent with the all-U.S.-business data.

Kudrle Robert T. , “Good for the Gander? Foreign Direct Investment in the United States,” International Organization, 45/3 (Summer 1991): 403. The critics in question are Tolchin Martin Tolchin Susan , Buying into America: How Foreign Money is Changing the Face of Our Nation (New York, NY: Times Books, 1988).

Wong Kar-Yiu , “The Japanese Challenge: Japanese Direct Investment in the United States,” in Yamamura Kozo , ed., Japanese Investment in the United States: Should we be Concerned? (Seattle, WA: Society for Japanese Studies. 1989). Working from micro-level data, Glickman and Woodward conclude that foreign investors eliminate more jobs than they create. Norman Glickman J. Woodward Douglas P. , The New Competitors, paperback edition (New York, NY: Basic Books, 1990), chapter 5. However, their results are probably too short-sighted, failing to account for increased productivity and re-employment. See Kudrle , op. cit., p. 414.

Kenney Martin Florida Richard , “How Japanese Industry is Rebuilding the Rust Belt,” Technology Review (February/March 1991), p. 25.

Yoon Young-Kwan , “The Political Economy of Transition: Japanese Foreign Investment in the 1980s,” World Politics, 43/1 (October 1990): 1–27.

U.S. Department of Commerce, Survey of Current Business (August 1991), p. 104; and Bank of Japan, Keizai Tokei Nenpo [Economic Statistics Annual] 1990, p. 250. Totals are as of year-end 1989.

Examples include Rockefeller Center [Wall Street Journal, September 11, 1989, p. A3; November 29, 1989, p. B1], the Seattle Mariners [Los Angeles Times, January 25, 1992, p. A1], and many small high-tech firms [Business Week, June 26, 1989, pp. 117–118; Christian Science Monitor, November 30, 1989, p. 9; PC Week, November 19, 1990, p. 191]. Nor are the Americans alone: Vickers recently asked Toyota to put in a bid for Rolls Royce [New York Times, April 23, 1992].

Wall Street Journal, November 5, 1991, p. A3.

Wall Street Journal, February 21, 1992, p. A1.

New York Times, February 20, 1992, p. D2.

Morita Akio Ishihara Shintaro , The Japan that Can Say “No” (unpublished translation, ND), pp. 15–16; Chandler Clay , “Tokyo's Dr. No,” The New Republic, May 7, 1990, p. 15.

Nor, contrary to the popular press, is American xenophobia restricted to non-white investors. When Britain's BTR tried to acquire the Norton Company of Massachusetts, some of Norton's workers burned the British flag and paraded around with signs proclaiming “Brits Go Home.” Glickman Woodward , op. cit., p. xv.

Even the “investment position” figures may understate the share of investment coming from Japan. Despite the assiduous efforts of the Commerce Department's Bureau of Economic Analysis to determine the country of “ultimate beneficial owner,” it is likely that some of the investment listed as coming from the United Kingdom and the Netherlands is actually controlled by Japanese corporations. The United Kingdom was an early home to Japanese subsidiaries seeking to avoid stringent capital controls at home, while the Netherlands Antilles is a major tax haven. Reverse cases are far less likely. See Glickman Woodward , op. cit., Appendix A, esp. pp. 305–306. For a recent overview of the Commerce Department's foreign investment data, see Survey of Current Business (February 1990), pp. 29–37.

Encarnation Dennis J. , “Cross-Investment: A Second Front of Economic Rivalry,” in McCraw Thomas K. , ed., America versus Japan (Boston, MA: Harvard Business School, 1986), p. 146. Note that as with many other aspects of foreign investment, these statistics are problematic. For example, the manufacturing plants of companies which begin importing products and then add local assembly are still listed under “wholesaling” until local production becomes significant enough to change the industry classification of the entire American subsidiary—a point not yet reached by most Japanese auto manufacturers, for instance. See Glickman Woodward , op. cit., pp. 54, 307.

For the classic study on Australia, see Kreinin Mordechai E. , “How Closed is Japan's Market?” World Economy, 11/4 (December 1988): 529–542; for citations to studies covering South Korea and the United Kingdom, as well as Australia, see Edgington David W. , “Japanese Manufacturing in Australia: Corporations, Governments and Bargaining,” Pacific Affairs, 64/1 (Spring 1991): 70. A MITI survey published in 1991 confirms these results more broadly, as does other work. Japan Economic Institute, JEI Report, March 6, 1992, pp. 8–9.

See Wassmann Ulrike Yamamura Kozo , “Do Japanese Firms Behave Differently? The Effects of Keiretsu in the United States,” in Yamamura , ed., Japanese Investment.

Japan Economic Institute, JEI Report, July 20, 1990.

Kenney Florida , op. cit., p. 32.

Cole Robert E. Deskins Donald R. Jr. , “Racial Factors in Site Location and Employment Patterns of Japanese Auto Firms in America,” California Management Review, 31/1 (Fall 1988): 9–22.

Wall Street Journal, March 24, 1988, pp. 1, 2; November 8, 1990, p. B1.

Powell , op. cit., p. 53; Fucini Joseph J. Fucini Susan , Working for the Japanese: Inside Mazda's American Auto Plant (New York, NY: Free Press, 1990), Chapter 8.

U.S. Department of Commerce, Survey of Current Business (August 1991), pp. 76, 104; Ministry of Finance data in Japan Economic Institute, JEI Report, September 20, 1991. The U.S. accounted for 46.5% of cumulative investment through 1991; the Netherlands was the largest European investor at 7.9%.

U.S. Department of Commerce, Survey of Current Business (October 1991), p. 34. This stagnation in employment is true of overseas affiliates of American firms more generally. but most other countries were much more open to American investment that Japan in the 1970s.

As measured by employment. Even developing areas such as Latin America and the Middle East are much higher. U.S. Department of Commerce, Survey of Current Business (October 1991), p. 30.

Henderson Dan F. , “Access to the Japanese Market: Some Aspects of the Foreign Exchange Controls and Banking Law,” in Saxonhouse Gary R. Yamamura Kozo , eds., Law and Trade Issues of the Japanese Economy (Seattle, WA: University of Washington Press, 1986), p. 131–156. Imai Ken-Ichi , “Japanese Business Groups and the Structural Impediments Initiative,” in Yamamura Kozo , ed., Japan's Economic Structure: Should it Change (Seattle, WA: Society for Japanese Studies, 1990), p. 172.

Data from Yamaichi Securities, as reported in Japan Economic Institute, JEI Report, September 20, 1991, p. 13.

The much-touted “exception” that proved the rule was the farcical, and temporary, acquisition of floundering audio maker Sansui Electric by Britain's Polly Peck International. Los Angeles Times, October 28, 1989, p. D1; Wall Street Journal, September 30, 1991, p. A6. Foreign firms have managed to acquire significant shares of a few second-tier firms, though usually not enough to gain management control. Examples include auto companies such as Mazda and Isuzu, as well as the pharmaceutical firm Banyu. For a thorough recent study, see Kester W. Carl , Japanese Takeovers (Boston, MA: Harvard Business School Press, 1991).

Encarnation Dennis J. , Rivals Beyond Trade (Ithaca, NY: Cornell University Press, 1992).

Encarnation Dennis , “American-Japanese Cross Investment: A Second Front of Economic Rivalry,” in Haggard Stephan Moon Chung-In , eds., Pacific Dynamics (Boulder, CO: Westview, 1989), p. 221.

Womack James P. , The Machine that Changed the World (New York, NY: Rawson/Macmillan, 1990), p. 205.

In addition to sources listed above, see Kogut Bruce Chang Sea Jin , “Technological Capabilities and Japanese Foreign Direct Investment in the United States,” Review of Economics and Statistics, 73/3 (August 1991), esp. p. 411, which stresses that Japanese firms often acquire U.S. technologies through joint ventures, many of which end up in acquisitions.

On the 1980 liberalization and its limitations see Henderson , op. cit. For a brief overview of the 1991 changes, see Japan Economic Institute, JEI Report, September 20, 1991.

The floor price for memory chips is less desirable, if only because it tends to aid a small part of the semiconductor industry at the expense of the computer industry.

Prestowitz Clyde V. Jr. , Trading Places, (New York, NY: Basic Books, 1988), chapter 2.

Stymied by disagreements over how to measure foreign market access, the June 1991 agreement specified two different formulas. The approach favored by MITI includes captive production by IBM Japan and other American affiliates in Japan, and measures the total semiconductor market somewhat more narrowly, leading to a foreign total about two percentage points higher than that of the American formula presented here. The 1986 figure comes from World Semiconductor Trade Statistics, which is conceptually similar to the new American formula. Both figures are for the final quarter of the year. Electronic News, March 16, 1992; Japan Economic Institute, JEI Report, November 16, 1990, p. 4: New York Times, March 31, 1992, p. C4.

Japan Economic Institute, JEI Report, November 16, 1990

See Glickman Woodward , op. cit., pp. 280–282, and Butterfield Peter T. , “Who Owns America? The Adequacy of Federal Foreign Investment Disclosure Requirements,” Columbia Journal of Law and Social Problems, 24/1 (1990): 79–116.

Womack , op. cit.

Popkin Samuel L. , “American Public Opinion and East Asia: Defense, Foreign Investment and Trade,” unpublished MS, Department of Political Science, University of California, San Diego, December 1, 1989, p. 18.

Saxonhouse Gary R. , “Comment,” in Krugman Paul , ed., Trade With Japan: Has the Door Opened Wider? (Chicago, IL: University of Chicago Press, 1991), p. 42.

Cf. Bartlett Christopher A. Ghoshal Sumantra , Managing Across Borders (Boston, MA: Harvard Business School Press, 1989), pp. 47–55.

Mowery David Teece David , “The Changing Place of Japan in the Global Scientific and Technological Enterprise,” California Management Review, 35/1 (Fall 1992, forthcoming).

Kester , op. cit., pp. 4–5; Dore Ronald , British Factory, Japanese Factory (Berkeley, CA: University of California Press, 1973).

The best known brief is Choate Pat , Agents of Influence (New York, NY: Knopf, 1990). For a biting review of Choate, see Kinsley Michael , “The Nefarious East,” The New Republic, September 24, 1990.

Milner Helen V. , Resisting Protectionism: Global Industry and the Politics of International Trade (Princeton, NJ: Princeton University Press, 1988).

Public speech, Institute of East Asian Studies, University of California, Berkeley, Spring 1991.

United States Congress, Subcommittee on Science, Research and Technology, Hearings on “University/Industry Alliances,” 1988.

There is some evidence that American firms are less adept at utilizing technology acquired from outside the firm, the so-called “not invented here” syndrome. Mansfield Edwin , “Industrial Innovation in Japan and the United States,” Science, September 30, 1988, pp. 1769–1774.

Koike Kazuo , “Human Resources Development and Labor-Management Relations,” in Yamamura Kozo Yasuba Yasukichi , eds., The Political Economy of Japan, Volume I: The Domestic Transformation (Stanford, CA: Stanford University Press, 1987).

Economist, September 14, 1991, pp. 67–68. See also Reich Simon , “Regulating Foreign Investment: Europe and the U.S.,” International Organization, 43/4 (Autumn 1989): 543–584.

Dertouzos Michael L. , Made in America (New York, NY: HarperCollins, 1989).