Determinants of Complex Vertical FDI and Affiliated Firms Productivity - Dissertation Example

?PhD Research Proposal Determinants of complex vertical FDI and affiliated firm’s productivity: Evidence from Japanese multinationals in ASEAN 41 andVietnam PhD fellow Eriko Katashiro UNU-MERIT Draft July2013 Supervisors: Dr. Pierre Dr. Thomas Ziesemer Abstract This study investigates the determinants of?complex vertical FDI by analyzing the Japanese multinationals investments in the manufacturing sector in ASEAN 4 and Vietnam. The research study involves two major parts. The first part measures the productivity of the existing Japanese affiliated firms engaging in vertical FDI in the host countries including the effect of trade costs on the productivity. The second part examines the theoretical and empirical determinants of the vertical FDI strategies. Keywords: vertical FDI, complex vertical FDI, affiliated firms, productivity, trade costs Total Number of Words: 3,984 Table of Contents 1. Introduction ……………………………………………………………… 3 1.1 Aims/Purpose of the Study ………………………………….. 4 1.2 Research Objectives …………………………………………… 4 1.3 Research Questions ……………………………………………. 4 1.4 Significance of the Study, Overall Contribution, and Policy Implication ……………………………………………… 4 1.5 Rationale for Selecting the Research Topic ………………….. 5 1.6 Scope and Limitations of the Study ………………………….. 6 2. Literature Review ……………………………………………………….. 7 2.1 Trade Liberalization and Firm Productivity Differences … 7 2.2 Types of FDI and Affiliated Firm Productivity …………… 8 2.3 Global Production Networking Models and Determinants of Global Production Networking ………….. 10 3. Proposed Research Methodology …………..…………………………. 11 3.1 Theoretical Analysis for Vertical FDI Strategies …………… 12 3.2 Empirical Analyses …………………………………………….. 12 3.3 Sources of Data ………………………………………………… 14 References …………………………………………………………………….. 16 - 21 Appendix 1 – Types of FDI ……………………………………………………… 22 Appendix 2 – Change in Number of Japanese Affiliated Firms, ASEAN 4 and Vietnam, 2001 – 2011 ……………………………. 23 Appendix 3 – Reduction in Tariff Rates by Country ………………………..... 24 Appendix 4 – Breakdown of Vietnam’s FDI between 1990 to 2010 …………. 25 Appendix 5 – TFP Calculation ………………………………………………..… 26 Appendix 6 – Tentative Time Plan ……………………………………………... 27 Appendix 7 – Semi-Structured Research Interview Questionnaire …………. 28 Appendix 8 – List of Additional Data Sources and Information ……………. 29 1. Introduction Vertical FDI can be classified as either “pure vertical FDI” or “complex vertical FDI”2. Also known as the “two country version” of vertical FDI, the pure vertical FDI indicates that multinational companies operate a production process in a foreign country and eventually export the intermediate goods to their overseas affiliated firms where the final assembly would take place3. In reality, production processes in the host country can be further fragmented by expanding the processes in neighbor countries. This process is called the “complex vertical FDI” which primarily involves the production processes of a business organization in at least three countries4. (See Appendix 1 – Types of FDI on page 22) Several studies revealed that decreasing the tariff rates can attract more vertical foreign direct investment firms to invest in a country5. For instance, the Survey on Overseas Business Activities (SOBA)6 reported that Japanese affiliated firms had experienced a significant increased in vertical FDI by 33% (from 1,615 to 2,155) in ASEAN 4 and Vietnam between the years 2001 – 2011. Vietnam, whose economy has been less developed than the ASEAN 4, was declared to be the most successful country in terms of attracting the Japanese multinational companies by 200% from 89 to 286 between 2001-20117. As of 2010, Japan (10.8%) is considered the 4th largest FDI in Vietnam next to Taiwan (11.8%), Korea (11.5%), and Singapore (11.3%)8. (See Appendix 2 – Change in Number of Japanese Affiliated Firms, ASEAN 4 and Vietnam, 2001 – 2011 on page 23; Appendix 3 – Reduction in Tariff Rates by Country on page 24; See Appendix 4 – Breakdown of Vietnam’s FDI between 1990 to 2010 on page 25) The gradual decrease in the tariff rates is one factor that clearly explains why the Asian countries have experienced trade liberalization during the last two decades9. In relation to the on-going trade liberalization in Asian countries and Vietnam, this study will seek to identify other determinants of complex vertical FDI strategies particularly in the case of the Japanese multinational companies. 1.1 Aims/Purpose of the Study The main purpose of this study is to identify the determinants of complex vertical FDI strategies of Japanese multinationals in ASEAN 4 and Vietnam. 1.2 Research Objectives The research objectives of this study include the following: (1) To be able to differentiate the productivity of Japanese overseas affiliated firms sector from exporting and domestic firms sectors in ASEAN 4 and Vietnam; (2) To analyze how trade costs reduction affects the productivity of the affiliated firms sector; and (3) To explore how parent and affiliated firm productivities influence complex vertical FDI. 1.3 Research Questions To examine the determinants and framework of complex vertical FDI strategies, this study will seek to address the following four (4) questions: (1) What is the difference in the productivity of Japanese overseas affiliated firms sector from exporting and domestic firms sectors in ASEAN 4 and Vietnam?; (2) How does trade costs reduction affects the productivity of the affiliated firms sector?; (3) How does the parent and affiliated firm productivities influence complex vertical FDI?; and (4) What are the determinants in complex vertical FDI strategies of Japanese multinationals in ASEAN 4 and Vietnam?; 1.4 Significance of the Study, Overall Contribution, and Policy Implication Despite the increasing demand for complex vertical FDI, very few studies have managed to identify and explore the determinants and framework of complex vertical FDI strategies. Therefore, this study will develop a new conceptual model which can be used in creating new policies on trade and FDI and for future research studies. This study can also help each country (i.e. ASEAN 4 and Vietnam) formulate new strategies for Trans-Pacific Strategic Economic Partnership Agreement (TPP). Despite the role of Japanese multinational companies in developing the international production networks in East Asia10, good explanations behind the production networks in East Asia has not been completely tackled in formal theoretical modeling. Today, very few empirical studies have closely examined the vertical FDI strategies of the Japanese multinational companies with firm heterogeneous productivity11. The research findings in this study are conducive on two dimensions. First, this is the first study to investigate the comparison among the total factor productivity (TFP) levels of three different sectors amongst the affiliated firms (i.e. exporting firms, domestic firms, and the productivity change of the affiliated firms involving vertical FDI from change in trade costs as compared to those of the exporting firms in ASEAN 4 and Vietnam). Second, computed TFPs and productivity change of the affiliated firms due to change in trade costs will play an important role for analyzing the complex vertical FDI strategies. Therefore, this study will help the readers in gaining better understanding of the modern vertical FDI. As trade costs decrease in neighbor countries, the Japanese multinational companies may need to shift from the use of pure vertical FDI to a complex vertical FDI; or from a complex vertical FDI strategy to another. Therefore, this study can help further improve the available theories and concepts on complex vertical FDI. Likewise, it will increase the readers’ understanding of the modern vertical FDI strategies and the restructuring of ex-post investments of the Japanese multinationals in ASEAN 4 and Vietnam. 1.5 Rationale for Selecting the Research Topic Since the cost of trade has significantly decreased in ASEAN 4 and Vietnam, investments made by the Japanese multinational companies will increase. Therefore, vertical FDI strategies evolved will be more complex. Despite increasing complexities in the vertical FDI in ASEAN 4 and Vietnam, most literature focused on analyzing the typical two-country model of pure vertical FDI12. It simply failed to address problems related to vertical FDI within a three-country model. No studies have tried to examine the complexities of vertical FDI amongst the Japanese multinational companies in ASEAN 4 and Vietnam. Topics related to the role of the productivity of affiliated firms and the impact of trade costs on their productivity in the host countries has been totally ignored. To date, most of the available theoretical and empirical studies have stressed on the role of parent firm productivity13, trade costs14, entry costs15, and factor price such as wage differentials between the North and South16. The role of the affiliated firms is important since it is one of the most influential determinants of vertical FDI in multinational companies17. Despite the role of affiliated firms in vertical FDI, most of the available studies gave too much emphasis on the importance of the parent firms’ performance; thus, neglecting that of affiliated firms18. Even though some studies were able to discuss the significance of the parent firms in a complex vertical FDI analysis19, there is no single study that has managed to systematically incorporate the heterogeneous productivity of the parent and affiliated firms into a single complex vertical FDI framework. 1.6 Scope and Limitations of the Study As part of investigating the determinants of complex vertical FDI of Japanese multinational companies in ASEAN 4 and Vietnam, this study will measure the productivity of the existing Japanese affiliated firms that are currently engaging in vertical FDI in the host countries including the effect of trade costs on its productivity. This study will also examine the theoretical and empirical determinants of the vertical FDI strategies. For the literature review, this study will first discuss trade liberalization and firm productivity differences followed by identifying and discussing the different types of FDI and affiliated firm productivity. The last part of the literature review will focus on examining the existing studies with regards to the global production networking models and determinants of general global production networking which includes offshore outsourcing and vertical FDI. In relation to the main purpose of this study, the research findings that will be presented in this paper are limited in terms of discussing the horizontal FDI in Japanese multinational companies in ASEAN 4 and Vietnam. Likewise, this study may not be applicable in justifying the key determinants of complex vertical FDI in other countries. 2. Literature reviews 2.1 Trade Liberalization and Firm Productivity Differences Trade liberalization is all about “liberalization of trade in goods and services, capital, and technology”20. By reducing barriers to import and export, demand for production in different sectors is expected to increase21. Since FDI is a good example of trade liberalization, the process of removing the import and export tariffs can somehow increase the number of foreign investors in each country. With regards to firm productivity differences, it is important to know that exporting firms became more productive as compared to domestic firms since 1990. To learn more about firm-level productivity, Melitz (2003) purposely developed the firm heterogeneity model by integrating the dynamic industry model of monopolistic competition by Hopenhayn (1992) and the trade model which incorporates the firm-level productivity differences by Krugman’s (1980). The model presented by Melitz (2003) strongly suggests that exposure to trade will stimulate more productive firms to enter the export market whereas the less productive firms will continue to produce only for the domestic market. Due to the presence of tight market competition, this model strongly suggests that the least productive firms would eventually be forced to exit the industry22. As a result, the available labor forces will be reallocated to more productive firms and eventually encourage an increase in the average industry productivity. Bernard et al. (2003) also developed a model for firm-level heterogeneity. To consider the presence of many countries, geographic barriers, and imperfect competition, Bernard et al. (2003) adapted the Ricardian model to firm-specific comparative advantage. In this model, labor is considered as homogenous. It means that skilled and unskilled labors are not clearly differentiated23. Guided by the heterogeneous-firm models of Melitz (2003) and Bernard et al. (2003), Bernard, Jensen and Schott (2006) presented an example of empirical studies related to the U.S. manufacturing firms. The empirical study was the first comprehensive evidence suggesting that the falling trade costs encourages productivity gains. In this study, Bernard, Jensen and Schott (2006) explained that productivity gain is possible since decrease in trade costs can make trading serve as a simple medium for the transfer of technology between two different firms. According to Amiti and Konings (2007), huge reduction in tariff rate can make the importation of goods and services cheaper; and eventually increase productivity through learning, variety, and quality effects. Therefore, applicable to the firms in the hosting country, vertical FDI affiliated firms can appear as highly productive as compared to the average industry productivity since this group of companies has ready access to high quality intermediate goods coming from its parent firms. 2.2 Types of FDI and Affiliated Firm Productivity Most of the available theories on the international trading of multinational companies draw a classical distinction between two types of FDI, horizontal or vertical FDI24, 25. Basically, horizontal FDI refers to investments that hold production processes close to the markets for the purpose of saving on trade costs26. Likewise, vertical FDI aims to reduce the production costs by taking advantage of wage differences between developed and developing countries27. For assembly purposes, it is common for intermediated goods to be exported from developed countries to developing countries. Complex vertical FDI strategies consider both saving trade costs and wage differentials28. In line with this, Ekholm, Forslid and Markusen (2007) introduced the model of export-platform FDI with conditions under which a firm in a developed country locate an affiliated firm for production in a developing country to assemble a product with low labor costs, and finally export the finished products from the developing country to the third country that is of high-income. It can be considered that almost all affiliated firms located inside a free-trade area concentrate their exports to other free-trade area countries (See Appendix 1 – Types of FDI on page 22). The available theories on FDI do not take into account the concept of firm productivity differences. The only thing that is certain is that productivity of the firms created by horizontal FDI is higher than that of exporting firms29. Based on empirical study that was conducted on 1,070 Japanese large firms, Head and Ries (2003) found out that firms with less productivity as compared to horizontal FDI firms can create vertical FDI. Using the Japanese firm-level data in Asia30 concerning vertical FDI, Hayakawa and Matsuura (2011) reported that it is more common for high-productivity firms to engage in a complex vertical FDI whereas most of the medium-productivity firms engage in pure vertical FDI. With regards to complex vertical FDI, all of these studies have focused on the productivity of parent firms and has totally ignored the productivity of affiliated firms. Several studies focused on analyzing the productivity of Japanese parent and affiliated firms31. For instance, using Japanese multinational data in Asia, Ito and Tanaka (2013) examined the extent in which the productivity of parent firms could affect the productivity of its affiliated firms and found out that it is common for high productivity parent firms to have high productivity affiliated firms. If the parent firms try to gain higher productivity, affiliated firms are likely to catch up their productivity in response32. Kohpaiboon (2009) focused on analyzing the productivity and spillover of affiliated firms. However, there is neither a single study that compares the productivity of Japanese affiliated exporting and domestic firms nor examine the impact of trade costs on the affiliated firm productivity in ASEAN 4 and Vietnam exist. 2.3 Global Production Networking Models and Determinants of Global Production Networking Both offshore outsourcing and vertical FDI are classified as part of the global production networking or global value chains (GVCs)33. Basically, the differences between offshore outsourcing and vertical FDI highly depend on the type of ownership. In most cases, offshore outsourcing refers to contracting work to an unaffiliated firm whereas vertical FDI relies on work to an affiliated firm34. Acemoglu, Antras and Helpman (2007) examined the relationship between contractual incompleteness, technological complementarities, and technology adoption. With regards to ex ante investment, the model presented by Acemoglu, Antras and Helpman (2007) is useful in determining whether or not to engage in vertical FDI or offshore outsourcing. Unlike offshore outsourcing, vertical FDI seems to be the best choice in case contractual frictions and/or credit market imperfections are present. After combining the firm’s heterogeneity of Melitz (2003) with the property-rights approach of Antras (2003), Antras and Helpman (2004) proposed the use of the North-South model of global sourcing strategies. This particular model explains the mechanism of a leading firm’s decision on how the production processes of intermediate goods are fragmented in the North or the South. In this model, the equilibrium sorting patterns depend on the following factors: (1) the wage differential between the North and the South; (2) the ownership advantage in each one of the countries; (3) the distribution of the bargaining power between a leading firm and suppliers of intermediate goods; and (4) the headquarter intensity of technology35. Another useful model is known as the property-rights model of the firms which was introduced by Antras and Chor (2012). To examine how GVC is organized, this model shows that production requires the firm to undergo a series of uniquely sequenced stages. It means that for each stage of production process, a firm’s make-or-buy decision depends on that stage position in the value chain. Furthermore, dependency in each stage of production is formulated by the relative magnitude of the average buyers’ demand elasticity and the movement of intermediate goods as faced by the firm36. For vertical FDI, Helpman (1984) created the first theoretical framework which associates multinational corporations with the ability of firms to exploit cross-country differences in factor prices by shifting production processes with different input requirements to the location(s) with the least cost of their production. 3. Proposed Research Methodology Using the Olley-Pakes methodology, the first part will measure the total factor productivity (TFP) of the Japanese affiliated firm sectors that are engaged in vertical FDI in ASEAN 4 and Vietnam (i.e. exporting firm sector and domestic firm sector). Using comparative method, the impact of falling trade costs on the productivity gains of the affiliated firm sectors in ASEAN 4 and Vietnam will be examined. In this study, comparing the impact of falling trade costs on the productivity gains of the affiliated firm sectors in ASEAN 4 and Vietnam is important in order to assess whether or not the affiliated firms have more advantages (i.e. technology transfer, etc.) from parent firms as compared to the domestic and exporting firms. (See Appendix 5 – TFP Calculation on page 26) To identify all of the potential determinants of a complex vertical FDI, a systematic theoretical review will be conducted to examine the productivity gain of the vertical FDI affiliated firms sector due to trade costs reduction as compared to those of the exporting firm sector in the host countries. Aside from the outcomes in the affiliated firm productivity and its gain from the trade cost reduction, other determinants can also influence vertical FDI and restructuring. To give the readers a better understanding on how other determinants can affect vertical FDI, theoretical analysis for vertical FDI strategies will first be conducted followed by going through several stages of empirical analysis (i.e. historical analysis on Japanese affiliated firms, interviews with the Japanese multinationals in ASEAN 4 and Vietnam, identifying determinants and framework for vertical FDI, and testing the validity of each determinants). In a vertical FDI, affiliated firms can either export intermediate or final goods or import intermediate goods to and from the country of parent firms or the third countries. Therefore, the underlying hypothesis that will be used in this study is that the falling trade costs may influence the productivity gains of the affiliated firms37. To estimate the productivity gains from the reduction of trade costs containing tariffs and freight costs38, the analysis will adopt the research method used by Amiti and Konings (2007) and De (2007). Based on the research findings, a new framework will be presented in this study. (See Appendix 6 – Tentative Time Plan on page 27) 3.1 Theoretical Analysis for Vertical FDI Strategies Theoretical framework for vertical FDI strategies will rely on insights coming from multidisciplinary models including all the above described literatures (i.e. property-right theory, firm heterogeneity model, north-south model, and OLI theory39). It will also include concepts related to technological gap40, endogenous growth theory, and GVCs upgrading theory. The search engine of Google Scholar will be used in gathering related literature. Using a wide-range of theoretical frameworks, the readers can gain better understanding as to why firms engage themselves in vertical FDI. These theories can also be used in laying grounds for the identification of key determinants. 3.2 Empirical Analyses To satisfy the research objectives and main purpose of this study, a total of four (4) empirical analyses will be conducted in this study. First, historical analysis on the Japanese multinationals’ vertical FDI strategies in ASEAN 4 and Vietnam will be carried out. This will be done through literature reviews together with analyzing the historical quantitative data on Japanese multinationals. Data gathered from this empirical study will not only improve the context of the existing literature but also helps in the development of semi-structured questionnaire which will be used later on for research interviews. To identify the key determinants of the vertical FDI strategies, the second empirical study will conduct a one-on-one research interviews with some managers from the Japanese parent firms. During the actual interview, interviewees will be asked about the strategies used by the parent and affiliated firms at the time they have decided to invest in ASEAN 4 and Vietnam. At this point, the OJC database will be used in generating useful information about the Japanese parent firms. The semi-structured research interview questionnaire will focus on asking the following questions: (1) What are some of the vertical FDI strategies your company is currently using in ASEAN 4 and Vietnam?; (2) How did the company decide to invest?; (3) Why and how did you enter, exit, or survive in ASEAN 4 and Vietnam?; (4) Do you train local employees?; (5) Are you successful in technology transfer in the affiliated firms?; and (6) How do you take advantages of falling trade costs? (See Appendix 7 – Semi-Structured Research Interview Questionnaire on page 28) The third empirical study will focus on identifying determinants and develop a new framework for vertical FDI. When deciding for variables and possibly new framework, data gathered from theoretical analysis, historical analysis, research interviews, and outcomes of the productivity analysis of the affiliated firms will be taken into consideration. To create a new framework, this study will incorporate the heterogeneous productivity of both parent and affiliated firms. Dependent variables include the sales of affiliated firms as a proxy of FDI measure41. Control variables will be divided into three characteristics for pure vertical FDI with two-country model (i.e. parent firm characteristics, affiliated firm characteristics, country characteristics) and four characteristics for complex vertical FDI with three-country model (i.e. parent firm characteristics, affiliated firm characteristics, country characteristics, and neighbor-country characteristics). In general, complex vertical FDI strategies broaden the determinants of FDI from the level of the country to the level of the neighborhood (i.e. the level of transport cost, factor intensity of production, and the cost of investing abroad). Therefore, including the “neighbor-country characteristics” is very important42. Using the spatial econometric techniques, the fourth empirical analysis will focus on testing the validity of determinants of vertical FDI strategies as proposed in the new framework43. In this study, a total of three (3) underlying hypotheses will be considered: (1) high productivity parent firms tend to organize complex vertical FDI; (2) parent firms which have high productivity affiliated firms tend to export in the third country, creating complex vertical FDI; and (3) other determinants such as trade costs, wage differentials, contract completeness also affect vertical FDI. 3.3 Sources of Data Secondary data will be used in this study. Data gathering for the TFP calculation will be taken from a two firm-level data sources known as: (1) the KaigaiSinshutuKigyoSoran (Overseas Japanese Companies: sorted by country, hereafter referred to as OJC database)44 as compiled by Toyo Keizaifor Japanese multinationals; and (2) the World Bank Enterprise Surveys for firms in ASEAN 4 and Vietnam. Both data sources comprise of information necessary to calculate TFP. Each year, the OJC database provides a free access to cross-section data on more than 23,000 Japanese overseas affiliated firms. It includes both the parent and affiliated firms including some information about the firm size, year of establishment, capital investment, number of employees, costs of labor, costs of materials, balance of payment, exit and entry of affiliated firms, and the purpose of investment (i.e. production networking, market access, etc.). The World Bank Enterprise Surveys contains a unique survey section about each country’s performance. When obtaining panel data, the World Bank Enterprise Surveys give free access to estimate productivity with the same firms across three consecutive years. It also includes information on non-exporter or exporter, firm size, and foreign ownership. (See Appendix 8 – List of Additional Data Sources and Information on page 29) Country-specific data will be acquired by going beyond the two datasets. For instance, there is a need to make a research on the producer price indices as deflators for purchased material inputs. Trade costs data sources are available at the industry level but not at the firm level. It is also possible to extract data on tariff rates from the World Integrated Trade Solution (WITS), particularly TRAINS raw data, and freight rates from the Baltic Exchange Dry Index which is available from the Japan Maritime Center45 or Datastream. Country-specific indicators will be generated by going beyond these datasets. 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Appendix 1 – Types of FDI Source: Own drawing generated from RIETI, 2013 Appendix 2 – Change in Number of Japanese Affiliated Firms, ASEAN 4 and Vietnam, 2001 – 2011 ASEAN4 Philippines Malaysia Thailand Indonesia Vietnam 2001 1,526 189 396 584 357 89 2002 1,575 201 390 613 371 93 2003 1,588 189 393 640 366 96 2004 1,711 210 413 707 381 115 2005 1,761 217 398 750 396 134 2006 1,783 228 393 762 400 164 2007 1,760 214 365 783 398 185 2008 1,781 213 366 812 390 212 2009 1,828 203 361 864 400 247 2010 1,852 216 363 877 396 263 2011 1,869 224 366 864 415 286 Source: Own calculation from SOBA Appendix 3 – Reduction in Tariff Rates by Country Source: The World Integrated Trade Solutions, cited in Hayakawa and Matsuura, 2013 Appendix 4 – Breakdown of Vietnam’s FDI between 1990 to 2010 Source: PWC, 2011, p. 9 Appendix 5 – TFP Calculation Considering the Cobb-Douglass production function, this study will use the Olley-Pakes methodology to estimate the following equation, (1) yit =0 +llit +kkit +mmit + eit where total revenue, y, in firm i at time t, is a function of labor, lit, capital, kit, materials, mit and error term,eit. The Olley-Pakes methodology takes into consideration the simultaneity between input choices and productivity shocks, and the sample selection bias since high productivity firms tend to appear on sample without exiting. Therefore, this study will modify the procedure to incorporate the firm’s decision to enter the international market via importing and/or exporting and create dummies for Japanese affiliated firms and export-intensive firms in ASEAN 4 and Vietnam. Assuming that there is a fixed entry sunk costs in the import market analogous to the entry cost of entering the export market, the formula of Melitz (2003) will be applied in this study. The log of measured TFP of plant i at time t for each industry is defined, expressed by tfpit, (2) tfpit=yit- llit - kkit - mmit The estimated equation (2) takes into account differentiated products and concentrated industries. Plant fixed effects will be used for the cross-sectional differences in the number of products produced by plants while this estimate control for mark-ups by including a Herfindahl index as an industry concentration index. The robustness check will be conducted with the OLS estimates. Appendix 6 – Tentative Time Plan Appendix 7 – Semi-Structured Research Interview Questionnaire 1. Global Strategies: Why is it important to create vertical FDI abroad? What are the global strategies involved? Why did you choose the location in ____? Did you expect to get ready access to unskilled labor and/or skilled labor in the host countries? Did you change the production strategies? For example, in a host country, does the affiliated firm change its function from only assembling to both designing and assembling products? For exit only: Why did you decide to close the affiliated firm(s) in the host country? Which are the alternative strategies did you take? Did you change the production line from the country requiring higher labor cost to the one requiring low labor cost? 2. Training Do you train local employees? What kind of training do you provide? How many local employees are trained? How many hours do you spend training local employees? Is training necessary to enhance their capability to work? 3. Change of global strategies Have you ever changed global strategies in ASEAN 4 and Vietnam? How did you change and what were the purposes? Did you make profits and/or advantages as expected before? Appendix 8 – List of Additional Data Sources and Information (1) TFP calculation: World Bank Enterprise Surveys description ASEAN 4 and Vietnam A panel data is being created for each year’s survey on productivity and performance. For instance, the survey in 2009 will calculate total factor productivity includes sales, direct raw material costs, total market value of production, consumption of energy, manpower cost in 2006, 2007 and 2008. Table 1: Firm number in manufacturing sector Country Survey Year Firm No. Indonesia 2003, 2009 696 (2003)*, 1,176 (2009) Malaysia 2002, 2007 902 (2002), 1,115 (2007) Philippines 2003, 2009 716 (2003), 959 (2009) Thailand 2004, 2006 1,385 (2004), 1,043 (2006) Vietnam 2005, 2009 1,055 (2005), 778 (2009) * Year in parentheses Source: Own calculation from World Bank Enterprise Surveys (2) Additional Useful Japanese industry and firm data for cross-check46 1. KaigaiJigyouKatsudouKihon (Doukou) Chousa (Survey on Overseas Business Activities, SOBA) Compiled by the Research and Statistics Department, Ministry of Economy, Trade and Industry (hereafter, METI)47 Cross-sectional data source available each year, functioning at the firm level, grouping Japanese firms and overseas affiliated firms into large, medium and small firms by industry Information of overseas affiliated firms that are owned or have been owned in the past by region or by country. Affiliated firms are invested capital of 10% to 100% by Japanese firms Data for the export and import amounts and percentages between Japanese firms and overseas affiliated firms by industry and by firm size, and sales amount to domestic markets available Status of entry and exit of overseas affiliated firms found. Royalty, R&D expenditure, sales break down, purchases break down, cost of local procurement, procurement from Japan, etc. available. 2. Input-Output Tables (Updated Tables)? Compiled by Research and Statistics Department Minster’s Secretariat, Ministry of Economy, Trade and Industry, Japan Industry level Import and export matrix tables are available for USA, Americas, EU, Europe (except for EU), China (including Hong Kong), Korea, Taiwan, ASEAN, Middle East Asia (other), Australia, and Netherlands, etc. Inverse Matrix Coefficient available 3. Results of the Basic Survey of Japanese Business Structure and Activities: Affiliated firms Compiled by Research and Statistics Department Minster’s Secretariat, Ministry of Economy, Trade and Industry, Japan Industry level Capital investment (domestic and international): 100%, over 50% to less than 20%, and over 20% to less than 50% Affiliated firms in Asia, China, Europe, North America and other regions available Items: number of firms; number of affiliated firms; number of employees; assets (current assets, fixed assets, deferred assets), debts and nest assets, sales, net sales, operating charges, sales amount, gross profit on sales, current profits, net profits per year, value added, etc. 4. Kaisha Shikiho Compiled by Toyo Keizai 3,139 Japanese firms’ detailed profiles *Further available data related to the information of Japanese companies information abroad at http://www.jetro.go.jp/library/reference/company1.html#company1_2. 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