Japans Foreign Policy and Its Current Investment Scenario - Essay Example

Japan's Foreign Policy and its current investment scenario Introduction This article reviews the foreign policy adopted by one of the most powerful economies of this world and the conditions wherein Foreign Direct Investment (FDI) can be made. We organize this paper in such a way as to make a financial investment work in Japan. We firstly, look at Japan as an economic giant and the genesis of it. Next we look at the foreign policies adopted by Japan and check if an investment climate exists in Japan. Under the current scenario, a lot of global economies are opening up and the impact it has on the US investment in Japan under the aegis of US - Japan Investment Initiative, 2001. We then conclude that such an investment scenario does exist in Japan and give recommendations for the investment. Emergence of Japan as an economical superpower Japan was a much maligned nation during the World War II (WW2) and prior to that. It was only after the end of WW2 did Japan began to consolidate its economic progress more seriously. Although the bombing at Nagasaki and Hiroshima did bring the WW2 to an end, the economy of Japan was shaken to such an extent that it had to restart from scratch. From the formation of its constitution, in 1947,1 Japan it has made rapid strides in the field of science and technology. With the current scenario on globalization of economy and with many countries opening up, the world economy is poised for a rapid change. Before we embark on the current scenario let us delve into Japan's past to see how Japan became a global power. It is widely assumed that the promulgation of Charter of Oath in 1868 2 provided the impetus for the growth of modern Japan. The then Meiji emperor emerged to be a major unifying factor promoting a series of radical reforms aimed at improving the conditions of Japan. 3 The Meiji rulers emphasized on improving the basic infrastructure of Japan and strengthened their foreign policies with the US and other European countries. These reforms laid the foundation for Japan to emerge a global power in subsequent years. The emergence of WW1 saw Japan become a real military power and began expanding its territory. By 1919 Japan had become one of the top five military powers to reckon with and was also granted a permanent seat on Council of the League of Nations. 4 The interim period between the two World Wars saw Japan go through a major political upheaval and the economy was in shambles. Nevertheless the Japanese export increased despite the Depression in the US. 5 The WW2 saw, once again the emergence of Japan was a major military power. The atomic bombings reduced Japan to shambles and the Japan surrendered to the mighty Allied Forces on 2nd September 1945 on board the U.S.S. Missouri in Tokyo Bay. 6 "Throughout the postwar period, Japan's economy continued to boom, with results far outstripping expectations. Japan rapidly caught up with the West in foreign trade, gross national product (GNP), and general quality of life. These achievements were underscored by the 1964 Tokyo Olympic Games and the Osaka International Exposition (Expo '70) world's fair in 1970." 7 Foreign policy of Japan Major foreign policies were drafted in Japan as early as mid-nineteenth century until the Tokugawa seclusion 8 was breached by the US Navy in 1853-54. This prompted the Japanese to embark on a policy of rising on par with the Western economy. "Beginning with the Meiji Restoration of 1868, which ushered in a new, centralized regime, Japan set out to "gather wisdom from all over the world" and embarked on an ambitious program of military, social, political, and economic reforms that transformed it within a generation into a modern nation-state and major world power." 9 In 1952, Japan became a sovereign nation and wanted to pursue economic goals and establish itself as a peace loving nation within the world community. These were the initial foreign policy goals during the early 50's. Gradually, with the passing of the Cold War era, the Japanese concentrated on its economic goals rather than get involved in global political issues. Eventually their foreign policy began to reflect on the economy of their country alone and their political leaders "began to argue that in the interests of economic self-preservation, more attention should be paid to the financial and development needs of other countries, especially those that provided Japan with vital energy and raw material supplies." 10 Since the beginning of the 70's Japan has grown into an economical giant from a military giant at the beginning of the twentieth century. Presently the crucial issue surrounding the US and other countries is how Japan will wield its economic power and muscle its way through the present global political scenario. Japan has maintained a stoic silence on many global issues and continues to do so. This has led to disenchantment within its own people and is being argued that Japan has not had any active and pragmatic Foreign Policy since WW2 (Shin'ichi, 2002). The government of Japan has been vigorously trying to project its new foreign policy since the turn of the new century by the Task Force on Foreign Relations for the Prime Minister (Anon, 2002). Social and cultural milieu of Japanese workers The Japanese workers are one of the hardest working people in the world and are dedicated to their workplace and companies. The image of a Japanese workplace is "based on a lifetime-employment model used by large companies. These employment practices came about as the result of labor shortages in the 1920s, when companies competed to recruit and retain the best workers by offering better benefits and job security. By the 1960s, employment at a large prestigious company had become the goal of children of the new middle class, the pursuit of which required mobilization of family resources and great individual perseverance in order to achieve success in the fiercely competitive education system." 11 Unemployment, in Japan, is very low compared to other Western countries and work guarantee is given to all people will they retire at the age of 60. Workers are recruited straight from the colleges and given intense training. The workers are provided housing subsidies, personal insurance, bonuses and attractive perks to compensate for their hard work. The majority of the foreign workers in Japan are Koreans and some Chinese. Because of their long period of seclusion with other countries the external workforce still find it hard to get absorbed into the Japanese mainstream. In 1991, Koreans constituted to more than 57% of the external workforce and Chinese around 14%. Generally it is very difficult, for foreigners, to get into the 'inner circle' of the Japanese society. Although Europeans and Americans are more tolerated and provided more hospitality than Asians, they also find it difficult to get adjusted within the Japanese society. A more plausible reason could be years of isolation and seclusion coupled with their language. As is the norm everywhere in the world, xenophobic tendencies are strong in Japan and become apparent in social gatherings and/or workplace. Nevertheless these things are changing over the years and with the opening up of world economies, things are changing. Also the chances of a company investing in Japan are not much compared to China, India or other parts of the globe. It is under this current scenario we are about to explore the rationale of US investment in Japan. Analyzing Foreign Direct Investment in Japan by the Americans The importance of investing in another country by a multinational company or a transnational company has been recognized as a major contributing factor for strengthening multilateral global economic relations. "FDI is an effective measure in vitalizing economies by enabling access to new technologies and innovative know-how, resulting in the supply of new products and services and the creation of employment opportunities" (Anon, 2007, page 5). In this context it is worthy to note that there is no disparity between the developed and developing countries when it comes to having access to raw materials and/or assets. "Developed countries and their firms will face new competition for various resources and assets, but they will also find new opportunities for economic collaboration. They will have to become accustomed to many more transactions involving investors from developing and transition economies as they expand internationally. In fact, the emergence of these new sources of investment has broader implications for international economic relations as it reflects their growing clout in the world economy" (World Investment Report, 2006, page iii). The top five countries like France, United Kingdom, Germany, Japan and the US currently dominate FDI made across the globe. We have, by now discussed FDI, in general and the foreign policy of the Japanese and their work and social ethos. As mentioned earlier, the average US citizen is more welcome than others and it is to be noted here that the ties with the US are on a high. The US is the most important nation in so far as the Japanese are concerned. The bilateral trade policies are favorable to the Japanese since Japan is the major exporter and the US is the major importer. Although the question we are analyzing is about Foreign Direct Investment (FDI) by the Americans in Japan, it is to be noted here that it is the US and Japan that are making the maximum number of FDIs in the world (Pantulu & Poon, 2003). If we look at the trade between the Japanese and the Americans we will realize that both the economies are interdependent. Any major policy changes by either Japan and or the US will have major fallout in the respective countries and elsewhere. There is a huge trade deficit with Japan and the US politicians and treasury officials will continue to debate over this now and in the future (Milhouse, 1997). Now let us look at this issue of US investment in Japan under the aegis of US - Japan Investment Initiative, 2001. 12 Presently the Japanese Government is at crossroads thanks to both monetary and fiscal policies that are not succeeding in Japan (Fauver, 2001). In fact Fauver (2001) argues as to why the US should invest in Japan and the benefits thereof. He talks about American FDI in Japan and argues the benefits of FDI. He opines that "foreign direct investors bring new managerial techniques and innovative technologies into the host country. This is not to say that they are necessarily better techniques. They are different techniques and they can foster change. The studies have shown in the case of the U.K. and Germany that foreign direct investors have higher labor productivity than domestic investors have. Foreign firms can also increase competition and lower cost, and bring new forms of corporate governance. They have different labor practices, and they can bring new financial products into the market." 13 When we think of FDI in Japan, we realize that FDI has increased 94% from 2001 to 2006. In fact the FDI in Japan for the year 2006 is 12.8 trillion or US$110 billion (Anon, 2007). The President of the US had assured the investors that the US will be willing to provide all help and threw open the US economy for global players. Similarly he also assured that American companies will be assured of a level playing ground in other economies. Considering the good ties, Japan and the US have both the governments are striving their level best to woo foreign investment in the form of FDI and Acquisitions and Mergers (A&M). "The individual issues related to improving the investment climate in Japan that were discussed in the past year include: (i) facilitation of cross-border mergers and acquisitions, (ii) deregulation in the field of education, and (iii) labor-related laws and systems." Conclusion Taking into account the political and economical issues discussed above, we recommend that there is a good investment climate prevailing in Japan and the US should take full advantage of this. The three industries that dominate the current scenario in the area of FDI are automobiles, pharmaceuticals and telecommunications (World Investment Report, 2006). Although FDI as a means of investment has been approved in Japan there has been a moratorium on A&M through swapping shares. "Japan, which had emerged as an important source of FDI in the 1980s, has declined considerably in importance as an outward investor over the past 15 years, but gained somewhat as a recipient" (World Investment Report, 2006, page 6). Hence it is important that we act and strike at the earliest. "In Japan, there are what may be labeled "sanctuary" sectors, such as medical services, utilities, postal services, and education. If international competition in these sectors were introduced through the participation of foreign capital, this would undoubtedly contribute to Japan's structural reform process" (Ito & Fukao, 2001, page 17). References Anon. (2002). Basic Strategies for Japan's Foreign Policy in the 21st Century New Era, New Vision, New Diplomacy. Available at http://www.kantei.go.jp/foreign/policy/2002/1128tf_e.html. Viewed on 19th January 2008. Anon. (2007). U.S.-Japan Economic Partnership for Growth: United States-Japan Investment Initiative 2007 Report. Available at: http://tokyo.usembassy.gov/pdfs/wwwf-20070601-invest-rpt-e.pdf Fauver, R. C. (2001). Foreign Direct Investment in Japan: A Catalyst for Growth and Reform. Available at: http://unpan1.un.org/intradoc/groups/public/documents/apcity/unpan002176.pdf. Viewed on 19th January 2008 Ito, K. & Fukao, K. (2001). Foreign Direct Investment in Japan: Empirical Analysis Based on Establishment and Enterprise Census. RIETI Discussion Paper Series, 01-E-002. Available at: www.rieti.go.jp/jp/publications/dp/01e002.pdf. Viewed on 19th January 2008. Milhouse. (1997). US / Japan Trade - Reality Versus Perception. Available at: http://www.gold-eagle.com/gold_digest/milhouse728.html. Viewed on 19th January 2008. Pantulu, J. & Poon, J. P. H. (2003). Foreign direct investment and international trade: Evidence from the US and Japan. Journal of Economic Geography, 3, 241-259. Shin'ichi, K. (2002). Reform in Japanese Foreign Affairs: Policy review long overdue. Gaiko Forum, 167, 3-12. Available at: http://www.gaikoforum.com/p3-12_kitaoka.pdf World Investment Report. (2006). FDI from developing and transition economies: Implications for development. New York: United Nations. Available at: http://www.unctad.org/en/docs/wir2006_en.pdf Read More